Touchless is the name of new multitouch software from Microsoft Office Labs. Much like the recently-blogged CamTrax software (see previous post), it allows you to use almost anything to create input for a computer via an ordinary webcam. MS Labs has released a software developer kit under an open-source Microsoft Public License that can be used to create custom apps, like controllers for digital puppetry purposes.
I really think that the concept of optically tracking everyday objects (I believe the technical term is "colour blob tracking") has enormous potential for (affordable) digital puppetry; much more so than motion capture. I've added this to my already-lengthy list of technologies to check out as soon as I have some time to spare.