I love the idea.....I actualy dream of this for a while.
I think you need only a wide space for your movements to play a virtual reality....and this is not an impossible thing to do. They are developing some virtual reality things. One day there will be virtual reality games....and that is going to happen more quick than we know it (in my opinion)!
For the sword we didn't need a real sword to play, only in the game of course. If a person watched you playing outside, he would only see you grabbing air!
You could do some preformances with sword, bow, dagger and shield. About the sword techniques: Like there is that guy in Clock town or Orca that theaches you to manage a sword, there will be that on the game. The difference is that you would manage a virtual sword with your own hands (wouldn't that be GREAT!)!
Just be careful with jars and other precious values in your house....lol!
This games are brain-exercicing. With this they would also be fisical-exercicing and that would be more beneficiant.
For the peoples outside, they could see the game on the TV and maybe we could listen to their suggestions (still I don't know how they could do it!).
But, just a correction of virtual reality games. There is not just a need of a helmet, but also gloves for the movements!