Rockmoon is a developer in Singapore that built this rig above -- it's an iPhone hooked up to Microsoft's Kinect motion controller, used to work with a game prototype similar to the old Sewer Shark Sega CD title. Basically, it's a two player affair, with one player using the Kinect to actually steer the in-game vehicle, and another using the iPhone to control the on-board guns.
As you can see in the YouTube video after the break, it all works quite well, though given all of the various forces at play here, there's likely no way this can be a viable commercial solution. Still, it's a fun idea, and it does show just how versatile the iPhone is in terms of the ways it can be used to control games both on and off its own screen. It would be cool to see an app like this used in conjunction with another gaming system. Apple, how 'bout it?