http://www.crunchgear.com/wp-content/uploads/2008/10/tuttuki_bako-560x444.jpg

<<The so-called Tuttuki Bako, Tuttuki Box, features a display that shows a digital replica of your finger once you put it into the hole in the right side of the device and start moving. Users can then play with a panda bear or a small figure, explore a “virtual” lake and touch a girl’s face or a slime ball.>>
http://www.crunchgear.com/2008/10/08/augmented-reality-the-tuttuki-bako-box-needs-your-finger-to-play-with-virtual-characters/

Also see this webcam interaction approach:
http://www.crunchgear.com/2008/07/20/lonely-try-fondling-augmented-reality-cyber-maid-alice/

[Via http://waxy.org/links/]

This reminds me of iPhone popcorn:

http://www.youtube.com/watch?v=tLUa2KYVTfg

Those people have too much free time....