Real-time virtual puppeting has been done in movies/television and research for a while now and yes, it can easily fool people.
A professor friend of mine Jeremy Bailenson at Stanford actually uses the Kinect to track facial movements and uses 3D models of others to create puppets in real-time. Even more interesting, he can morph your face with the person you’re video conferencing with to create a feeling of commonality in them.
He actually wrote a book on it called Infinite Reality [1] which talks about all kinds of ways people will probably get manipulated in the future. He talks about things like mirroring movements (which he can do automatically in a video conference), looking into the eyes of every participant in a group video conference and other really interesting psychological hacks.
Real time video face substitution (and the resulting “psychological hacks”)
“Arturo Castro’s real time face substitution technique”
Link/Videos: http://www.notcot.org/post/43233/
An HN comment I found very interesting:
From: http://news.ycombinator.com/item?id=3022929
Hacker News discussion thread: http://news.ycombinator.com/item?id=3022479