Kinect is equipped with 6 mics for voice commands and a web type camera as well as the sensor which is infra red that detects motion. Its how the video is captured with the kinect video chat.
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As far the indie game support for kinect you are correct but I'm leaning to the arcade which does indeed have it. However I have received the information on doing the arcade games and other than expense and proof of concept there isn't too much more hoops to jump thru. But it is considerably more expensive.
It must be something horribly prohibitive; I've never seen anything short of professional on Arcade. You almost certainly don't have the option until you do some XNA work at the very least. And I would say you would have trouble making anything but a small game on XNA, but apparently the size limit has been raised from 150MB to 500MB.
I'm not sure that the kinect's camera would have decent resolution to use a facial image as a texture on something. Anyhow, that's a ridiculously specific idea. Make some game first!