Using ARtag demo software and marker, I did an experiment in which I exported my robo model (rave) out of Maya and use it as a virtual object input. The demo is limited to a 3D object still (non-animated).

I use Logitech QuickCam Pro 4000 in this experiment. It works pretty well even in the bad lighting condition at night. As you could see in this video, the ARtag allows virtual object to be perfectly aligned to the tag marker. The demo allows only a completely flat tag marker. If the marker is bent or uneven, it will create a wrong perspective and break the illusion. The demo shows 3D object in a very crude way, but I think additional shadow, shading, etc are definitely already available. I am sure this technology is continuously developed and will be available to public very soon.

The last time I saw this technology in use was for this virtual cyber-maid doll from Japan, can be seen here:
geishatokyo.com/jp/ar-figure/figure.html

That was one of great example and the interactivity is a step forward. Another example would be:
1. Interactive brochure/poster
2. Interactive architecture projection in real time.
3. Animated tattoo
4. Animated 3D virtual children book.
5. 3D encyclopedia cards.
6. Virtual 3D avatar projection ala Star Wars.

As most virtual project, this one require user to have some kind of optical device. PDA, smart phones, webcam are obvious candidates, but possibly Nintendo DSi and special glasses/eye softlens. A digital camera with such feature may also be useful.