We know - who reads manuals, right? But when the device is something as new and intruging as Kinect - and you don't have one in your hands yet - suddenly that usually bin-filling document is suddenly far more interesting.
It has details on spacing. "The sensor can see you when you are approximately 6 feet (2 meters) from the sensor. For two people, you should play approximately 8 feet (2.5 meters) from the sensor." So you'll need a decent sized room with plenty of open space. That would be our bedrooms as teenagers out of the question, then.
"For the best play space and sensor performance, place your sensor between 2 and 6 feet (0.6 and 2 meters) high, the closer to the low or high limit the better." Seems pretty flexible there, although it warns users not to put the sensor bar on top of their console.
It also offers some solutions should the sensors gizmos not be working properly for you, advising that you "turn on lights to brighten the play space," "try wearing different colored clothing that contrasts with the background of your play space," and "prevent lights, including sunlight, from shining directly on the sensor." So pretty much exactly like EyeToy.