Create a device for tracking distance traveled in small places. For example, the Children's Museum in Minnesota has tons of blocks and a few conveyor belts. Children put the blocks on conveyor belts and move them around. It would be fun to know how far each block travels per day. GPS would not really work because the blocks stay in the same room.
This could be interesting, and would have other uses, but the implementation is tricky. If you discount GPS (indoor GPS technologies would be prohibitively expensive here, and you seem to want finer resolution anyways), the only options left are dead reckoning with accelerometers and gyros (which would have large errors) and ultrasonic/RF networks like MIT's Cricket system: http://cricket.csail.mit.edu/ which would have acoustic problems inside of a block. Interesting idea, but you need to invent something first for which this could be an application.
maybe RFID would work?
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