[ None of the below is currently on my active tasks list, these are just some ideas to add to John's topic to kick off discussion, not promissing anything at this point :-> ]
I've got some ideas brewing in this area, I've got a .Net Micro Framework (.Net MF) device that I might actually find time to play with one of these days :->. The one I've got is a Fez Cobra (http://www.ghielectronics.com/catalog/product/136
), which includes a scaled down version of Presentation Framework (although no XAML defintion support, have to do everything in code) so I can create virtual gauges without having to drive any real external hardware :->.
An addition on the SimConnect server side that would help support this type of development, would be to add a new SimConnect server type that supports connection over a serial port (mostly to support VCom over USB, although real serial ports would work too :-> ), another option would be a custom SimConnect over USB protocol handler with drivers, but that's a lot more work :->.
Another option for embedded systems using something like uCLinux or Wind River (are they still around?) - basically any 32-bit environment with a gcc tool chain and network sockets support - would be to provide a scaled down (ie only using langauge features supported by embedded gcc toolchains) version of the SimConnect client code that could be built for the target platform.
I also tried my existing Beatles Blog Silverlight Managed SimConnect client with the Windows Phone 7.1 SDK Tools Beta, and it works as-is with the new network sockets support (of course, you can only use this with the emulator at the moment). So there's another potential screen/device to extend the sim to :->