Its not a hoax, again, this is how the navy submarines navigate underwater. I know this because I spent 10 years on one as a Navigation Electronics tech.
If you know where you start, and know which direction you were heading in, at a rate of speed, its fairly simple to estimate your position.
The accelerometers can provide the speed and direction if it had acceleromters to cover 2 axis's. Considering the have the ball game where you tilt the Ipod in any of the 4 directions to control the ball, then yes, it would have what is needed to accomplish this.
Whether or not its programed to do so is another story. Dont dismiss things as not possible simply because you dont understand the technology or principles behind it.