This kind of thing would definitely qualify as a "killer app" in my book. Its going to be useful for games as well as more functional day-to-day stuff (see Layar). I'm no developer so I don't know if there are any limitations to doing this on the iPhone, it has all the right hardware, so as long as developers have all the relevant APIs, apps like these are going to be available (hopefully) soon. As for the price, I would rather it not be 35$ but if its a full-fledged game and not just a toy, who knows, I'd definitely consider it.