Our sons watch DH play COD and a couple of other violent games games but not the really gorry ones. We let our kids play games like castle crashes and a few other fighting games, but none that are really graphic - blood etc maybe once a fortnight. DS1 plays pokemon and nintendogs.
All are loving, caring kids.
I think it would have an implact if the kids played GTA or gears of war for 18hrs a day. Kids have to learn what is real and what is not.
I too grew up playing mortal kombat and I have never been in a fight nor am I a violent person.