But even just by examining a few users, you will learn a lot. We went through this exercise in an HCI course I took. We were divided into groups of 4 students and we were required to observe 4 students (no in the class) while they used predetermined website they had never seen before (usually small online stores selling furniture). The total man-hours in the assignment would have been 1 hour pre-user * 4 * 4 observers = 16 hours. The operations were simple: find a bed and matching night stand, find 4 chairs and add them to the cart, etc.

The key to what you said was "...observed 4 students..." by reporting back all the clicks, movements, etc, you are not observing, you are interpreting data.

Intent of the user is key to usability. You can not get intent from this data. What you can get is what the user actually did. Maybe they did not intend to cancel the dialog box but they did since they where expecting the buttons to be reversed.

The only way to get at intent in through observations. You can learn a lot from observations and usability testing a lot faster and cheaper then trying to instrument up an entire application.