Audiopad was invented by two Media Lab graduate students at MIT, James Patten and Ben Recht. To quote James' website:
Audiopad has a matrix of antenna elements which track the positions of electronically tagged objects on a tabletop surface. Software translates the position information into music and graphical feedback on the tabletop. Each object represents either a musical track or a microphone.
The demo is pretty cool. Make sure to watch the second part of it, that's the part where they really show off how it works. It's an interesting user interface (UI) that they've developed as well. Make sure to check out the videos on both the Audiopad and as well as the generic video which shows off some of the different implementations of the physical model UI elements he's working on.
NOTE:Since a posting about Audiopad was recently done on Slashdot, the MIT webservers are running extremely slowly. It may take a while to view the video/pages.