There are many, many ways of accepting user data and controls into an Arduino board, and the foloowing method is certainly novel. Using a lot of foam, some aluminium foil and various hardware along with an Arduino, the people at Treehouse projects have made a huge, soft-touch game controller. As it is powered by an Arduino, it can be used in various Processing games - and this is demonstrated in the following video:
If you're looking to embed a full-sized Arduino-compatible in your project but would like to save some money, consider the Freetronics KitTen. This has all the features of an Arduino Duemilanove-compatible without the USB interface and is in kit form, saving you money while staying true to the Arduino form. For more information and to order, check out the KitTen page.