I'd like to see someone try augmented reality using glasses, even if just as a peripheral. Maybe 5 years would be too soon for that, but all the technology is falling into place. You'd need lightweight glasses with a camera incorporated into them. The glasses would let you see the world around you still, but it could draw graphics on top. So something like those IR eyetoy demos or that french AR demo, but taken to the next level - instead of this reality being on your TV screen, it would be literally in what you see through these glasses, changing how you see the world. Early examples would merely add things into the world, but maybe a more sophisticated end-game could even manipulate what you see of the real world (mapping in what you see in realtime to a virtual model and then modifying it depending on what's happening in the game). If you threw in the processing power and graphics fidelity that could be available in 5 years - if you could somehow link that to the glasses - it could be very very compelling indeed. It could be a very cool next step in the mixing of the real and the virtual that people like KK go on about
The tech is already there (at least in terms of hardware). When I think of this, I think of the 3D infrared eyetoy demos, but in thinking about those I always thought that 'just' having that on the TV you're viewing was somewhat limiting, whereas if it could be done directly in what you see it would be far more immersive. Of course, not every game would fit with this necessarily, but as I say, even as a peripheral I think it could be very very cool indeed.
But it would need to be refined hugely to a point where anyone would be happy using it and wouldn't look silly, and maybe 5 years is too soon to expect that.