overfloat
>I just wish my thumbs weren't so fat

Personally, I dont think that using thumbs is the best way to play Maemo Theremin, when I play I use 4 fingers of the right hand, I do not use thumb, see my video:
http://www.youtube.com/watch?v=dIO0AiyDlx4

>I was just getting corrupted static out of the speakers...

Do you use latest OS2008? I have 5.2008.47-3 firmware flashed and I have not ever observed this problem. Possibly there is some bug in ALSA packages or dependencies, that is when installing some other application which depends on ALSA it replaces the ALSA lib which depends on libhildonmm-1.0.so.1 instead of libhildonmm-1.0.so.2. Unfortunately, this problem remains unresolved.

torspo
I think it is possible to use proximity sensor for controlling sound pitch, for example.
I did not investigate proximity sensor APIs available on maemo 5, don't know if it is possible to get distance info, rather than just two possible states close/far. Also, I have no N900 to test this on.
So, I think it IS possible to make that, but I have no plans to do it in near couple of months.