Since some folks seem to be doubting thomases, I took the liberty of converting the video to avi so I could examine the frames of the video more closely and check the timing.
Here are some screenshots of one of the sword swings:

This swing took half a second. The middle shot is halfway through the swing. And as you can see, in that shot the sword on screen still points to the right, even though his arm is all the way over on the left.
That means there is 500ms of lag, on top of your own reaction time of around 250ms to deal with.
For comparison, the lag in an online first person shooter might be 50-100ms on average, and in a worst case 250ms. With 500ms of lag such a game becomes unplayable.
Now obviously he can throw a ball with the wiimote, because lag doesn't matter there. But if things were flying towards him and he were exepected to bat them away, unless they were moving very slowly, he'd have a hard time of it. I guarantee you the baseballs in Wii Sports 2 won't be rocketing past you at 60mph, and sword fighting as we saw in the Nintendo E3 presentation will be more like a slapfight.
I think in the video he mentions "early detection" of motions. I think what that means is that their toolset lets a developer look at the first tenth of a second of a motion and decide how the user's going to follow through based on that and then start playing the predicted animation early so as to reduce the percieved lag.
Unfortunately, even if that is the case, he's demonstrating their system here. One would assume that said prediction would be part of this demo if that's a part of their toolset and he's talking about it. And if that's the case then that means the actual lag is even worse than we're seeing here, and it only looks as good as it does because of the prediction, and even with that, it's still less than perfect.
I know everyone really wants the Wii controller to be fixed, but I'm afraid you're just going to set yourself up for dissapointment again if you buy into this 1:1 thing. I haven't seen a single demo yet which has convinced me there isn't significant lag in response time.