With quite a few Augmented Reality iPhone apps currently in development, along with creative new approaches such as this use of HTML 5 video, I see Augmented Reality as a frontier with a great deal of space for startups to flourish.
1) Sci-Fi AR is much, much closer than people think. Obviously iPhone/Androids apps are a good first step, but Minority Report style UI's within 2 years wouldn't surprise me.
2) AR is going to be HUGE. I think there is a distinct possibility that AR could be bigger than the web. It feels odd saying that.
The one thing holding it back is the lack of the AR equivalent of HTML/HTTP. At the moment everything is proprietary. Hopefully, HTML5+Extensions (eg http://www.w3.org/2009/05/DeviceAPICharter) will get there soon.
The demo is using a recorded video in the left view, with JS processing on the right. When he (I) was developing it, I used VLC to stream the webcam to the page.
If you view-source, I've got a link to the documentation on how I did that: "To use this with a webcam instead of a saved video you'll need to stream your webcam via the same domain this is running from. http://nicklothian.com/blog/2009/11/17/using-a-webcam-with-h... has some docs on this."
He not only gives an example of virtual keyboard, he also gives example of a paper can be converted into a touch screen with a motion sensor.
Highly recommended video.