You can totally do real-time raytracing. I wrote my first raytracer a couple of weeks ago — http://canonical.org/~kragen/sw/aspmisc/my-very-first-raytra... — and it gets about 4fps on simple scenes on my netbook, despite being the product of only a few hours of work. If you use a GPU and/or SSE and/or a faster CPU, you should easily hit full-motion video.

My netbook is probably half the speed of an iPad.

It would be fun to put together a custom OS-less AMI to raytrace partial frames in realtime on EC2. 20 instances spun up in a few hundred milliseconds could do pretty substantial real-time raytracing.