Original Post at Mobitrends: http://www.mobitrends.com/2008/08/27/head-tracking-in-second-life/
I someone at SIGGRAPH from Carnegie Melon who told me that 8 of their grads in the HCI dept went on to an internship for Linden Labs and were working on just such a thing (Mitch Kapor mentioned it at SLB5). But I'm not sure that this is the same team.
Likewise, this team is using a regular webcam... Mitch and his team are using the Zcam, which runs roughly about $250-300 (what I was told at SIGGRAPH). See the demo for that below
Zcam, webcam 3D - Second Life