The surface "mice" on laptops seem to do that. I suppose something similar with a USB plug or a wireless connection would work on a desktop.

Regular mouses (mice?) use a ball or laser that tracks their movement relative to the surface. It should be possible to make a mouse that uses a stationary infrared, radio or ultrasonic transmitter to track its movement even if it was in the air. This is how a Wii controller works. Alternately, it might be possible to use accelerometers to measure its movement.

I think a wand style device would be handy and practical. The only problem I think would be that your arm will get tired. One advantage of a surface mouse is that you can rest your arm on the surface.

they already make it, i have one, it uses a 2 axis accelerometer to sense movement in min-air, it feels like pointing a laser-pointer at the screen, takes a little time to get used to, but i love it for using my laptop in bed. http://www.gyration.com/?l=en#productDetail/mobility/airMouse

I suggested a "mouse glove" where dots of metal on the thumb and index finger simulate a mouse. For a wand, would you have set it down to type?

like the wiimote? It is IR, like a remote, and has an accelerometer built in, too.