They're limited in that they don't have the same abilities as professionally produced games. What I'd like to see is a leveling of the playing field when it comes to online digital game distribution for consoles. Restricting some of the system's abilities (ala iOS, etc) is naturally going to happen, but anything a professional title can do, my (hypothetical) game should be able to do as well.
There are also a lot of interesting possibilites for streaming video, etc like what you're starting to see on iOS devices. The situation for content might be a little sticky considering that MS does its own distribution deals. At the very least opening the field up to smaller shops and lowering the barriers and costs to entry would be a huge step in the right direction and MS would still get a cut as the apps/games would be bought with Microsoft points.