I like the idea... And I'm glad it's being worked on. However I think the controls for this might be kinda hard/difficult to use.
The program would have to interpret your drawings so if you drew something that looked remotely like a circle it would draw a sprite of a circle. But in order to do that the drawing has to look/be something like a circle. Rather difficult without the pen/whiteboard in the video.
Go try drawing something that looks like circle in PaintZ (Without using the circle tool), And see what you come up with. If you're like me you get an odd polygon shape whose lines cross over. To have to the Zune interpret something like that as a circle would be almost impossible (At least to interpret correctly every time). My suggestion would be to use something like the circle tool in PaintZ. There are probably other shape tools that would be needed, other than a circle.
If anyone else has an idea I would be interested in hearing it though.
Oh, and good luck with this project.
It would be fun if it worked!