Upset? No, but it would be rather stupid to do so. People getting all these free games, will sooner or later also start buying DLC, so MS will still be able to make some revenue off of these free games. Releasing free Kinect games caters to a small amount of people that have. The rest either doesn't have kinect or doesn't care about it.
So I wouldn't care in the least, Fable 3 and Halo 3 will keep me occupied for a while and I can sell off my physical copy of Assassin's Creed 2. It would just be a missed oppertunity.