As someone who loves both acting and RPGing, I've always wondered why LARPing didn't hold more interest for me. This has been a very thought-provoking thread.
I've never participated myself, but I've seen LARPs at cons, and a member of my mid-90's AD&D group I DM'd tried to get me into his NERO group - but as a rather emotionally unstable fellow, I really didn't want to spend much time with him away from the gaming table. Harsh, but true. On the other hand, two very good friends of mine are in SCA, and are great guys to spend time with; never joined their group, though. On the third (!) hand, another very good friend is a fantastic actor and fight choreographer, but won't go near the SCA with a ten-foot pole, mainly because "they really try to take your head off with their sword." Which brings me to the point I can add on the subject.
When you're doing a play, the most important thing for an actor to do - regardless of any "talent" level - is to fully commit to the play, and to be fully engaged with your fellow actors. You can't commit to the characters and plot half-way, and expect the audience to enjoy the show; they'll see it's fake, and won't be able to suspend disbelief. This is one of the functions of the rehearsal process - you create, as a group, a space where everyone feels safe and so they can fully commit without fearing that your fellows will let you down. You're there for them, they're there for you, and there is trust built up over time and practice.
At the cons I've seen, I've felt bad for them because most seem to self-conscious. This comes from not being able to commit fully to thier role as a mage or vampire - there isn't a trust level, because you are on you own, as it were; and even if you had a theatre-style rehearsal period to get into character, and you could fully trust everyone you're LARPing with, there would still be the outsiders - other attendees of the con - that aren't in on it. You have to be on your guard to not hurt or freak out someone, so you can't fully immerse yourself. The last thing an actor can be, and be good, is be self-consious on stage - and that's exactly what LARPers need to do, in order to stay in character, it seems to me. On stage, you're not worried that your fellow fighter will *really* take your head off with the sword (trust again) - but in LARPing, you have to have a wall up, because you're really fighting, and reallt have to guard yourself.
On the other hand, from the posts I've read here, there are people who have no problem fully committing to their character, civilians be damned - and that brings up a whole 'nother raft of issues that mistergone talked about.
Once again, these are all an outsider's impressions, but I hope my dual insight is of some use to someone.