Don't be silly - you can't make an iPhone with an AVR at home, of course. But you can get a surprising amount of functionality out of a 8-bit processor and a cheap touch LCD.

This JTAG Debugger from the Cornell university is based on an ATmega644 and it’s capable of controlling program execution by setting breakpoints and accessing registers and memory.

A Nintendo NES emulator, built on ATMega644 - another Cornell project.

Python for ATMega and AVR 1-bit groove box by Noah Vawter.

An interesting crossover between hardware (MCU, card reader, display) and software (PHP web server) by Cornell University students.

A new MCU-based project from Cornell University. It utilizes a microphone placed in a stethoscope to recognize various gestures when a fingernail is dragged over a surface (an original idea, isn't it?).

Two simillar projects with one goal - a handy portable web radio, based on microcontroller (AVR or ARM), a VS1053 audio codec and Ethernet controller (built-in with the ARM version), with Power-over-Ethernet capability.

A bit more powerful than Arduino, but compatible with Arduino: Sanguino.

An open source 8-bit game console (an Uzebox successor)

AVGA is TILE-based AVR interrupt driven audio-video driver for a single-chip game console. Or: It's a great board for developing and prototzping AVR video stuff!