It would be awesome if they made a zombie killing fantasy game like this on the iphone that overlayed the zombies lifesize into whatever scene you are in. Imagine fighting off an invisible zombie hoard in your local mall or at the bus stop. Multiplayer would be a blast as well.
I watched this video and an idea immediately came to mind. Bastards!!
Very cool demo, especially with the addition of the map on the tabletop. There is definitely possibilities here for cool stuff to be created.
EDIT - One example I'm thinking of is AR overlays for pre-existing boardgames.
For example, imagine playing settlers of catan with an AR 3D overlay, or oldschool randomised adventure games like Warhammer Quest using cardboard markers instead of miniatures and letting AR fill in the blanks.
I was over at a friend's place and tried this game out - the gameplay seemed pretty poor.
To be honest, I think creating AR's for games that already have a very good track record for gameplay (eg, catan) is a better prospect than trying to reinvent the wheel and coming up with a square?