The game controller function the YRG is a minor part of its capabilities and most of the people who purchase it don't purchase it for that. I've heard its fretboard described as being like a guitar with an impossibly low action. I've seen clips of people doing some pretty incredible things with it. (You can see a review of it by a professional musician named Dan Mumm here. He runs down the differences between playing it and an analog guitar and demonstrates a piece that he created, playing all of the parts, including drums, with the YRG. He loves the fretboard, because its "impossibly low action" lets him play faster than on almost any standard guitars).
As you mentioned, as an RB3 Pro controller the YRG has the advantage that it can be hooked up to an amp or headphones so that you can listen to yourself play along with the game without any effect on its function as a controller. I've actually run a cable from the headphone connection of my AVR into the YRG's audio-in and plugged headphones into the YRG and listened to myself play its internal guitar patches along with the game without making any noise anyone else could hear other than the sound of my strumming its strings.
They're working on a second version of the YRG, but it's not going to have strings on the fretboard. What it will have is a full sized wooden body and neck, which would make the prospect of playing it on stage a bit more appealing.