Here are 4 image processing projects from academia that made a splash in 2007. The links go to the original posts with more information and sources.
VideoTrace: fast interactive scene modelling from video
And some things from corporate, Hydra: Adobe's answer to Core Image? and Microsoft Surface≠Minority Report.
Also, from Seattle by way of the TED conference: using photos scraped from around the Web, Blaise Aguera y Arcas of Microsoft shows Photosynth and Seadragon creating amazing multidimensional spaces with zoom and navigation features.