When I read about it and thought about it, I didn't see why it couldn't be a real product. The fact that the ipad supports bluetooth keyboards seems to me to be a way to implement controls. You'd just map the arcade's physical controls to certain keys and send them to the app via bluetooth.
The main problem would be securing the rights to the games. I know Apple won't let emulators on the iphone and I'm assuming the ipad, so Thinkgeek would need to get the actual copyright holders of classic arcade games to work with them in creating ipad apps.