My two most entertaining research projects right now are synthetic insects and smart dust. The Smart Dust project is aimed at putting a complete sensing/communication platform inside a cubic millimeter, including power supply, analog and digital electronics, etc. Thousands or millions of these dust motes will all communicate simultaneously. Applications are all over the map. Instrumented hospital rooms so that your syringe knows if you're the right patient or not, instrumented bodies so that we can all participate in 3D virtual ballet, instrumented atmosphere so we can predict weather (did you see Twister? those sensors were way, WAY bigger than they need to be).
, The synthetic insect project is basically smart dust with legs. We're shooting for millimeter scale legged locotion, or possibly flying. We're working with people in biology who study insect walking, running, and flight (they've got little force platforms and virtual reality setups for bugs - very cool). In my vision of the project, in a few years you'll be able to use a web-based cut-and-paste design tool to select legs, motors, sensors, and electronics to design your own custom insects, download control algorithms to them, and turn them loose in a 3D interactive simulation to socialize or do battle with other virtual bugs. Once you get the design you like, you press the button, it gets submitted for fabrication, and two months later you've got the actual device (more likely hundreds of them) running around on your desk.