My Mom did this too with some tinfoil, a can of black paint and a mirror. My Dad said he could see her 3D behind a mile away and a clear a a bell. (must have been a big bell)

by Gorillaz in 2005 live on stage, this technique apparently goes back to Victorian times.

You can do fancy stuff like that with a wiimote.

http://www.cs.cmu.edu/%7Ejohnny/projects/wii/

already did this, and better I think, since you can interact with it:

http://www.akihabaranews.com/en/review-63-X.html

Wasnt it INQ who reported on that? I cant remember...

I agree it is perhaps the next logical step beyond multi-touch; this or voice.
I actaully had the opportunity a few years ago to play ping pong virtually, using only my hands. Think Wii with no weapon-like controllers. Microsoft Labs had a demo in the MS Museum but the beauty of their setup was that it used off the shelf webcams to determine your hand's position. 
It didn't just have ping pong, it also allowed you to draw freehand and "pressing harder" (moving your finger more forward) drew a heavier line for example. It really was impressive, especially in that it used ~$150 worth of gear. I would love to see that come to my living room PC - yes I have one...

Any interface that requires large gestures is doomed to failure. Yes it might look "futuristic" in a film, or really wizzy when woss'is-name demonstrated the MS "surface", but after a couple of minutes your arms are so tired you'll be reaching for the mouse again.
Plus, where are you going to get all the space from. Offices like to squeeze staff in as densely as possible and the average home doesn't even have room for a decent sized telly - let alone a wall you can wave at.
Tech novelty: 10, Practicality:2

So you were at the AVN when everyone else was at the CES ?
And this is all you came back with ?
Come on, show us some pics ! ;-)

Now, concerning a levitating UI, that might look real cool on film, and could possibly have been quite fun to do for five or ten minutes for a nutjob who is used to dreaming and doing silly things, but as a full-time developer, the prospect of having to use my arms to program instead of my fingers and a mouse makes me doubt very much the practicality of it all at a technical level.
Not to mention the awful cramps you'd get after a days' work.