About being desensitized, it would be less likely to happen if it weren't for the fact that the nature of the situation is a lower level form of hypnosis. If everything seems real to a person, including the sight, feel, and maybe even the scent of the area, it would be perceived that way by the subconscious and superconscious mind. Which in turn will influence the conscious mind over time, and ultimately shape a person's attitude and personality. It is this situation where you would fear for society, whether it be from desensitivity to violence, or a method of cultural definition from Big Brother.
Scary stuff, really.