This is one of the most ingenious mixtures of modern technology I've seen for a game. The integration of YouTube and any handheld video camera makes for easy-to-generate content, and you've built a really simple Duck Hunt-like interface to mix it with. The apparent level of interactivity is a real jump from any seemed Flash game, despite the jumps when you cut from one video to another.
The best part is that this framework has a whole new way to generate content. Instead of making entirely new art to make a new game with a different feel, now you need only shoot one day's worth of video. Dress in a leather jacket, find a dump or a construction site, and you could turn this western into a Half-Life reference without much programming.
Good thinking, and great delivery.