Traditional games, be it FPS or 3rd person ones, don't work properly in VR. The mismatch between visual and physical feedback becomes way too big, causing sickness. You want full range of motion when you already have full range of vision, but that will never be possible in the living room. You want different interaction, like really holding your virtual rifle. And when you have full range of motion, you for example run through virtual walls because there are not real wall stopping you, which breaks the immersion (and when you disconnect the camera movement from your head movement once you hit a wall, you cause motion sickness, so it's a lose-lose situation). So VR ready games need to be very different. So I think it's highly certainly going to fizzle for mainstream games. 3D on the other hand is going to stay. High res autostereoscopic displays coupled with Fishtank VR will be da shiznit, enhancing traditional game setups.
The problems you mention applied to previous generations of VR hardware which couldn't provide the latency and resolution needed to create a usable VR experience.
Oculus Rift seemed to be the first commercially available product that may have solved these issues and Morpheus doesn't see too far behind.
There are tons of videos where people try out the developer versions of Oculus and many have reported some motion sickness with early versions which have been fixed now.
What remains to be done is mostly the programming and that's for the game developers to accomplish which will inevitably take some time but it should be no problem to disallow movements that are not allowed in real life such as walking through walls.
Input wise i could see specialized third party controllers being developed if the VR thing takes off. Especially shooters could benefit by making model guns (pistols and assault rifles) that you hold like the real world equivalent with adapted movement controls so you can move around while holding the gun (this would also be very interesting for real militaries for training purposes).
It just depends on how big the VR market will be if the headsets work as advertised. As someone else has already mentioned this could be the killer device of our generation and open up whole new possibilities to use them for entertainment as well as many other real life applications.