During E3, PrimeSense, the company behind the Kinect hardware, told Joystiq that the system it had licensed to Microsoft could only handle a maximum of two active players at a time. PrimeSense couldn't confirm at the time that Kinect could only calculate two players, and Microsoft didn't comment further when we asked, but leaked Kinect technical specifications from a few UK retailers seem to match up with the two "active" player limit. The leaked technical specifications claim that the Kinect camera can recognize any number of human bodies, but can only calculate the movement and actions of two people at a time.
Other interesting specs have the camera pulling in a video view with a 640x480 resolution at 30fps, and an echo cancellation system in the mic that will make voice chat possible directly through Kinect. The information also explains what the original Xbox 360 will need for the device: 175 MB of memory for system drivers and an open USB port (to connect Kinect).
Of course, these specifications aren't yet official, and they're strictly for the hardware -- not every game will support camera output or voice chat.