Microsoft and Mitsubishi Electric Research Labs in Cambridge, Massachusetts -- the cats that brought us LucidTouch a while ago -- are back with NanoTouch, a further refinement of the technology aimed at making UIs practical on tiny devices. Utilizing a 2.4-inch screen with a touch pad on the back, users can select or drag items from the underside -- meaning that the entire screen is visible at all times. According to researchers, targets as little as 1.8mm (less than half the size of, say, the buttons on an iPhone) are easily hit using this method -- bringing the advantages of touchscreens to smaller form factors, with a number of possible applications including electronic jewelry, wearable computers, and virtual finger puppets. Video after the break.

Update: It appears that unlike LucidTouch (which was in fact developed in Cambridge), NanoTouch was actually the product of work done by folks from Microsoft and the Hasso-Plattner-Institute in Berlin / Potsdam. Sorry for the mix up!