Here's a fun project from the fabulous Victoria & Albert Museum in London.... V&A's Patchwork Pattern Maker.
Just upload a photo and the Patchwork Pattern Maker will create a custom quilt pattern for you! You can even use images from the V&A's collections, which is pretty awesome.
The results can end up quite abstract or detailed, depending on the image you choose, plus how many squares and colours you want to use. Check out the gallery to see what patterns people have already created - at least virtually. It would be interesting to see some of the finished, fabric results!
If you're looking for a comparable program to make knitting patterns from photos, have a look at MicroRevolt's KnitPro application for creating custom intarsia patterns for knitting.
(via the ReadyMade blog)