Augmented reality is a technological direction I am very excited about, and one that I think can have an enormous impact on everyday life.
Kotaku posted a link to this French video (which, sadly, requires RealPlayer) showing CG objects interacting with real objects in real-time. The interactions are both visual (CG objects are occluded by real objects) and physical (CG objects are pushed away by real objects - though obviously not the other way around).
There's similarly exciting research going on here in Vienna: check out The Invisible Train, a multi-user augmented reality application for handheld devices - if I'm not mistaken, Palm or PocketPC PDAs. There are some demo videos as well.
(I've also seen a video of a system that puts CG glasses on a real face in real-time, but I can't find it right now.)
Just think of all the information in the physical world that is easier to convey with practical AR. Certainly everything having to do with navigation and pathfinding. Printed maps become obsolete. Navigation systems become so much more elegant (try driving across the Karlsplatz here in Vienna, or any other complicated intersection, using a typical car navigation system, and you'll see what I mean). AR is a great way of 'explaining' in-game interfaces - better than HUDs (I still regret that Deus Ex never used that). I consider it very likely that real life AR interfaces will be inspired by game interfaces.
And of course there is the potential for a next-gen EyeToy. I wonder what Richard Marks is working on now?...
Update: OK, this is what Richard Marks has been working on. Cool stuff!