I can't get enough of this augmented reality stuff -- we've seen a lot of location-based text rendering already, but a German-based company named Metaio has released this video showing actual 3D images and models projected into the world through a phone (like the iPhone, one of the devices they say they're planning to support). Of course, this is still all just tests and demos -- not only is the company likely still trying to see partners and funding (like so many other development companies in this field), but until Apple actually lets developers at a clear, unedited stream from the videocamera, AR is still in the theoretical phase.
But once again, the potential here is staggering. As I said, most of the things we've seen so far are based on text: hold your phone up, and have signs or other location-based information displayed to you. But when you start including 3D models into the mix, then things get really nuts: instead of just seeing tourist information, you could have a virtual guide show you around the museum. Or have a virtual hide and seek session with a creature that moves around the environment as you look for it. Other companies have been experimenting with AR on their own hardware, but Apple's combination of a video camera, a GPS/compass system, and a powerful handheld computer takes the possibility farther than we've seen it yet.