There are multiple testimonies on the internet about head mounted displays along with joystick movement inducing motion sickness. It gets worse as the pace of the movements increase. Haven't run any experiments myself, so perhaps you are right. What is the scale of the DK2 demo? If it is a room scale demo you can't infer much from it. The issue would be the addition of the joystick movement with the head movement, resulting in a final movement vector that is in conflict with your inner ear. Any of those two movements taken on their own (e.g. moving your head while standing still, or moving with joystick while keeping your head straight) would not result in any conflicting signal.
Other applications of VR still apply, but this I believe will remain a major hinderance for FPS style games.
First hand here, the DK1 was brutal, DK2 was ok. Besides what is actually being played another major variable is the machine driving it. If the frame rate is less than ideal it will cause issues.
The thing is I got motion sick in the early 90s playing Wolfenstein 3D and so did others. On like a 15" monitor. There were stories about people vomiting back then. When is the last time you heard of someone getting dizzy and puking after play call of duty? I haven't heard of FPS motion sickness since the 90s.
All of the technical nuances related to what invokes motion sickness in VR have been exhaustively studied and are actively worked on. However my experience makes me suspect there is some adaptability involved as well. I've spent most of the past decade in dense urban cores and if I haven't been in a vehicle in a week or two, a cab to the airport leaves me close to puking.
From a commercial standpoint the important thing is don't give your customers a shaky first demo that leaves them with dry heaves. Give something neutral like sitting in a movie theater, and gradually ease them in.
Other applications of VR still apply, but this I believe will remain a major hinderance for FPS style games.