Camspace is pretty slick. The people at CamTrax are demoing the PC camera-based interface. At first blush, I thought it similar to the gimicky Eye Toy games, but this is much better. CamTrax is a software-based technology that enables the tracking of hand-held objects in real time, with high reliability. What you see in the demo is that the software recognizes the hand-held objects and effectively turns them into pointers and other controls that can be used to act on the simple end as a cursor, and on the more sophisticated end as a game controller.
On a related note, you might be interested in checking out Chung Lee’s experiments with alternate control of the Wii.