People need to seriously grapple with the copyright implications. I don't know if (and don't imagine) porn producers are okay with people using their product which is supposed to lead to paid memberships (on of and the like) being used like this.
Seriously though, it's very good for a tiny homebrew project that hasn't been running long or with huge resources. Just think about where this is gonna be in 3 years. Photorealistic interactive videogames are probably not far off. I read a while back that Second Life is now a hub for virtual sex experiences so I assume this sort of tech will converge, and do so rapidly.