This video's actually been around for quite a while (it's over 2 years old), but I just ran across it and thought it deserved a bit of attention. The project uses ARToolKit, a software library for building Augmented Reality (AR) applications, and a webcam to simulate a virtual theremin.
In the video, the player holds 2 sheets of paper decorated with specific glyphs. A webcam recognizes the glyphs and can calculate their 3D position and orientation, translating that into control messages for the virtual theremin.
The video is annotated throughout with text in Japanese, so if any of our Japanese readers could help with a translation, perhaps we could learn more about this very cool concept.
I think there's a lot more that could be done with this idea, such as letting a person play a virtual 3D RCA theremin complete with a realtime simulation of the actual RCA sound. Anyone out there up to the challenge?
Watch: ARToolkit and Fake of Theremin (YouTube)