Also, you can do stuff like this with the rift: https://www.youtube.com/watch?v=gXov2qyZ-nc
Essentially, it's a horror game in which you're playing a horror game on your tv while sitting on the couch. This has the effect of fooling your brain into focusing on the game-within-the-game, and treating the room you're sitting in as reality. It then messes with you in the room you're sitting in.
Imagine if you played an actual horror game like that, only rarely making use of the VR room you're sitting in. Literally building a virtual 4th wall to be demolished at the game dev's leisure.
Eventually they'll make one where the virtual room doesn't do anything but you're scared the whole time that it will, and the Postmodern Horror genre will be born.
I can just see someone explaining that while high, in a slow hipster like voice "So you see, the whole time you expect that suddenly the geometry of the room you're in will turn non-euclidian, or that random objects will move on their own. But they don't. As time goes on you become more frantic. You try to calm yourself by making yourself believe that that sofa is going to eat you, or that you are in a dream within a dream. But nothing happens. Everything is normal except for that monster on the TV trying to eat your face off, but you are prepared for that."
You could actually do better than that. You can make changes which are much more subtle. Slight modifications to your projection matrix, slight warping and that sort of thing; all over long periods of time. Enough to subconsciously throw you off, but not enough to consciously be visible.
Though really, the ultimate horror experiences will come when/if the Oculus Rift gets eye-tracking. When we look at a scene, we're actually only looking at the details of a small portion of it, with the rest being fuzziness filled in by what our brain expects to be there. Now, if you have eye tracking, you can use that in a couple ways. First, you can enhance detail only where it's necessary (vastly speeding up pretty much any game by virtue of not needing to do high-detail rendering where you aren't looking).
Secondly, you now know where and with what level of detail you can fade something into a scene someone is looking at without them noticing. So imagine, for a moment, you're looking down a hallway. Knowing exactly what you're looking at and how much detail your eyes can ascertain in any part of the image (dropping off rapidly from the central point you're looking at),
the game can add a monster within your field of view, without you noticing it appear. To the player, it would appear as if the monster had always been there, but they simply hadn't noticed it despite looking directly down the hallway. They would even remember seeing down past where the monster was standing and there being no monster. But would be completely unable to remember when or how it had appeared despite never having looked away. Same goes for making things disappear.
You could violate every inaccurate expectation we have about how our eyes work and create the most amazing horror experience of any game. At that point, it's not even about some spooky monster, it's that you are explicitly violating the player's expectations about how the player's body works to inflict sheer psychological terror. It would be as terrifying as if a horror game had come out of the screen and brushed against the back of your neck.
Oh right, and by the way, eye tracking has been listed as a feature they want to bring in some unspecified future version:
"Imagine more cameras, and we try to get your hands in the game," he said. "You want to see your hands. You're going to want eye tracking. You're going to want mouth tracking. You really do want to be fully immersed in the game. It's not going to happen for v1 - we're probably not going to see hands for v1 - but it is going to come."