Layered reality is one of the funnest ideas I've run across in a while. Google Maps (or Earth) is cool because it lets you add layers to reality. The whole application itself is a layer on top of reality. The earth itself is the reality. A satellite photo is the first layer of abstraction. A map on top of that is the second. The 3d images of buildings, another. And the flags of interesting locations. So we add these abstractions on top that make it more useful, more accessible, or more fun.
A role-playing game is the same thing. It's just some people sitting around in a room. But add on the mutually accepted layer, and it becomes a party of adventurers exploring an ancient tomb.
A group of people playing an Alternate Reality game exploits the same basic idea -- a 'normal' task becomes much more exciting when it's suddenly part of an interesting, broader story. Coming up with the broader story is one part of the problem. Coming up the normal tasks is the other, because I don't think normal activities are really fun enough.
So I was thinking... Paintball! Now, this post is sponsored by Ultimate Paintball, a paintball company who sells things like guns and helmets (and the key link for this sponsorship: paintball mask). But paintball would be a fun thing to tie in to an ARG.
You're thinking, "no, that would be lame -- it's already a game, and could only exist as a subgame." (Okay, you're not really thinking that, but you would be if you were thinking about this the same way I am.) It has its own rules and its own layers of abstraction from base reality.
But remember that James Bond movie where they were doing the military exercise, and that was when somebody decided to really infiltrate the base? Paintball as its own game would be fun, and then it offers tremendous potential for clever story hooks.
Maybe while the players are paintballing, another objective comes up. You have to find a secret message, from somebody who's not playing the game, and it's in the enemy camp. The rules of the real paintball game make that a risky thing to do. But the rules of the ARG require you to do it.
It's that blending of rules that makes things tricky. From a design standpoint, the biggest deal is I have to be sure not to force players into bending any legal framework. If that secret message is inside a diamond store, you can't break in at night to get it. If police think you look suspicious leaving that brown, paper-wrapped package under the park bench, you're in trouble.
So artificial social constructs that offer their own set of rules that we CAN break are ideal. The world of paintball has many rules that you don't want to break, but can in the ARG without reaping too-serious consequences.
I'll be on the lookout for other things like this that would work, too.