UE4 can definitely handle the particle effects side of things.
In terms of the performance side there are two options I can think of that would work with UE4.
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Kinect 2.0
There is already a community driven Kinect 2.0 plugin which will allow you to use the Kinect realtime for interactive experiences. Though the Kinect has trouble with complex movements.(namely rotation as the kinect is a singule device capturing the scene from one direction).
https://forums.unrealengine/showthread.php?389-Kinect-4-Windows-v2-0-Plugin&highlight=kinect -
Perception Neuron.
Neuron is an inertial motion capture platform that can be used in real time. Their Kickstarter just completed funding (over 2X their goal). It was designed with VR, mocap, and stage performances in mind, but can be used for many other applications and it doesn’t matter if it’s real time or not. The nice thing about this solution is that it is inertial which means it has sensors built in that track its own movement through space; no line of sight is necessary. That means it can be hidden under a costume if necessary. That said for it to be wireless it does need a WIFI connection, though I think clothing isn’t thick enough to interrupt the signal. So far they’ve only shown Unity integration, but they confirmed that their will be Unreal integration as well. It releases to backers February of 2015.
You can find out more here: https://www.kickstarter/projects/1663270989/project-perception-neuron/