One area I see a lot of potential for that is unconventional is to use projectors in-addition to a TV screen as an output device. Today you can buy color LCD displays that are (about) 1 inch in size and actually have a fairly decent resolution (320x240) and with a decent lens and a few white LEDs to back-light the screen you should be able to produce a decent low resolution projector; and depending on what you were trying to do it could (potentially) produce a visible projection that was (up to) the size of a decent TV screen on a surface.
Now, with one projector you could do some simple things and produce a handful of images into the environment people are playing game in; but if you start using multiple projectors the possibilities become far more interesting. Consider a game like Rock Band producing a light show in your room when you’re playing the game, or a FPS allowing characters to be displayed off-screen, a party game displaying something to interact with on the floor (like a DDR mat), or a RPG displaying your world map on the wall.
In a way, if you combine this (projecting the game-space into the real world) with what is being done with the Wii, Natal, and the Playstation Eye (which could be perceived as projecting the actions of an individual into game space) you might end up producing a system where the lines between the game and reality are blurred.
The only problem I see with this (at the moment) is that you would want the technology to be high enough quality at a low enough price to do this well. The minimum I would want to use with an approach like this is 2 or 4 projectors (although you could still do quite a bit with 1) and I would really want to see a resolution from each of the projectors in the 480x320 range (although 320x240 may be adequate)
On top of this, I wouldn’t be surprised to see the Sensor bar integrated with the Wii Speak and (theoretically) a camera. While all of this seems very conventional and straightforward, there would be an opportunity for Nintendo to integrate one (or multiple) “low quality” projectors into a device like this as an output to the user in addition to the TV-Screen. While there are limitations to how you could interact with the projections (and elements like a projected DDR Mat on the floor would be out of the question), having your world map projected on the floor or a wall, or having a light-show produced in a Rock Band game, or having something appear on your roof to shoot might be cool; and the technology to produce a small (relatively low resolution) LCD display that is back-lit by several high powered LEDs should not be that expensive or advanced.