Augmented Reality as a concept gets really interesting when you combine it with other technologies. As we have seen from the demonstration of the upcoming Xbox Project Natal innovation, speech recognition technology has grown very rapidly and is increasingly being applied to video games.
Although speech recognition has been used in the past it was inconvenient and frustrating to work with and now we actually see the human voice to be a viable control option. If we had to combine speech and facial recognition with augmented reality, the potential for augmented reality for engaging gaming experiences in real-world environments was easy to see. You can also read about: How is augmented reality marketing related to your business? on various sources of the internet.
With this combination of theoretical technology, you can communicate in both directions with high-resolution, computer-generated characters in your expanded world, opening up entirely new possibilities for the way we play games. I like to think of the experience as paintball. Paintball is primarily an RPG activity as the people involved in the game recreate the scenarios you will find in war.
Augmented Reality can provide such an experience without the need for paintball and protective gear. Instead of shooting real people, you can shoot real people and virtual characters with virtual ammunition. You may still need a gun controller in a first-person shooter example, but it won't fire any ammunition in the real world, just an enlarged area.
Obviously, this is all speculation and a large part of what we write on this website. I think this idea will work if the AR lens is connected wirelessly to a portable console (probably built into your phone as we talk about the future here). and you'll definitely get audio through a pair of wireless or Bluetooth headsets that also have built-in microphones to communicate with the virtual world and the real world.