This game's callied Mightier. It's an entrant in this year's Independent Games Festival. You design stuff and solve puzzles in the real world, then scan them into the game world.
May look like a pain in the arse (and to be honest, it is a lot of work), but where's the fun in being such a party pooper. It'd be neat as a PSN or XBLA title (using the console cameras, of course), but PC owners can grab a freeware version of it right now if you're feeling all artsy & craftsy.