The Console Wars has uncovered an interesting research project Microsoft were working on back in 2002.
The "XWand" is a wireless remote control sporting an accelerometer, magnetometer and gyroscope that lets users control various devices by gesturing at them; for instance in a video of the wand in action, a researcher turns on Windows Media Player by pointing the wand at his monitor, then adjusts the volume by twisting his hand left and right.
Though it wasn't specifically designed for games, the XWand is interesting considering how similar it is to Nintendo's "Revolutionary" new controller:
The XWand is a novel wireless sensor package that enables styles of natural interaction with intelligent environments. For example, a user may point the wand at a device and control it using simple gestures. The XWand system leverages the intelligence of the ubiquitous computing environment to best determine the user's intention.
Wand: UI for Intelligent Environments - XWand video
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