We have done a lot of work and thinking about the augmented reality developed by the HIT lab in Christchurch over recent years. Basically, to the naked eye, you see a pattern on a surface. Through special glasses, that pattern is translated to a 3-D object. It is a fascinating technology that sees interaction move away from the screen, and the mouse - a developing trend that we are keen to accelerate!
Here is an interesting use of that idea, where tipping a cube allows you to interact with a character and guide it through rooms in a building. Better still, the interaction is connected through three cubes - extending the experience.
Interestingly, augmented reality images can now be viewed on your cell phone - using the cell phone camera instead of a clunky pair of glasses. That could make the interaction much more compelling and ubiquitous.