If they have material so when you swing your sword - you actually hit something. Or when you shoot your gun - it provides some kick and feedback as if you were firing a real weapon then I can see this working really, really well.

The audio cues are there - the visual cues are there. Add in some haptic feedback and maybe even smell (ie. make a room full of dead bodies and blood smell rancid) and you've hit every sense but taste. I can easily imagine it would cause a state of presence if done right.

Obviously their graphics will have to be "good enough" (although sadly it won't reach their CGI'd video editing level anytime soon :( )