This reminds me of the winner of MacHack '98. It was a system extension which rendered the screen's contents in colored ASCII, in real time. The demo was Phantom Menace... it looked great. Miro said the important bit was only about 50 lines of C.
And there's telnet:towel.blinkenlights.nl, which has quite a bit of starwars ep4 as ascii art. mplayer also has a -vo ascii feature that will render any video in ascii art.
http://www.hax.com/MacHack/BestOf98.html