Saw it last night with my wife and two friends. Our theatre was packed with a full house and everyone was getting into it, and I have to say that I got freaked out and felt fear and dread several times during this movie - and I'm someone who never really gets "scared" when watching horror films, and I personally do not even believe in the existence of ghosts or demons. There isn't anything in the way of story or plot here, but that's not the point ... the goal is to scare you, and the film certainly made good on that goal.
I think it's much to this movie's credit that the simplest means of scare tactics are the very best, and this low, low-budgeted film - with no blow-away makeup or CGI effects, no dazzling camera work (the scariest parts come with the camcorder completely still in one frame at night), and only a cast of two or three people, can be more effective than the most action-packed multi-million dollar blockbusters. You have to know HOW to make a subtle scary film where less is more, and this certainly accomplished that. It is a complete slap in the face to bloated Hollywood that an amateur project like this can trump all "traditional" horror movies of the last couple of decades when it comes to producing scares.
I thought I was getting tired of the "shot on home video" genre after THE BLAIR WITCH PROJECT and CLOVERFIELD (both good films, I thought) but I'm wondering if the success of PARANORMAL ACTIVITY will keep revitalizing this approach. The technique is very strong in capturing the "reality" feel of a horrific situation.