Your anecdote (and goodside's) are indeed a bit scary. Of course, tracking faces within an enclosed space (casino, shopping mall) is not the same as tracking someone's movement throughout a whole city. But maybe it could be applied on the streets of certain “high-crime”, downtown areas and spread from there. I admit I'm troubled by the thought of the executive power available when such a scenario becomes normal. We need to match this technological innovation with some form of social innovation that keeps police accountable, but obviously “who watches the watchers?” is a difficult and unsolved problem.
To track someone through a crowd, you don't necessarily need continuous facial recognition. You can tag the identity to a person once using facial recognition or other means (credit card or ATM use if you have that data), and then revert to a more basic motion tracking system to follow them around.
I don't know much continuous object tracking across multiple cameras, but I highly doubt it's a difficult problem as long as the cameras have some overlap.