Here's an interesting paper from PARC. I don't buy the premise -- to create a 3D virtual book -- but the paper raises some useful overlaps with our smart book idea, e.g. references, context, vocabulary.

http://citeseer.ist.psu.edu/card04book.html

Abstract: This paper describes the 3Book, a 3D interactive visualization of a codex book as a component for various digital library and sensemaking systems. The book is designed to hold large books and to support sensemaking operations by readers. The book includes methods in which the automatic semantic analysis of the book's content is used to dynamically tailor access. (Update)