I think it's a gimmic right now...as the sensors (3gs and Android devices) aren't fast enough to make it really use-able. The thing I wonder about is...is there enough movement to convince OEM's to put better sensors in their phones?
The number of real world applications for this is just about endless. Just a couple:
- overlay the location of underground pipelines on the ground above, no more cut pipes & cables
- automated guided tours
- hunt for real estate, complete with background information
- search for the nearest parking spot
- revamp the display of navigators like tom tom (overlay on glasses??)
and so on.
One of them is a fairly simple application where you hold the phone up against the skyline of the city and it shows you the outlines of properties for sale, you can then zoom in on them and the background information appears.
I can't see how a google maps version of that would give you the same interaction.