The Defense Advanced Research Projects Agency (DARPA), the agency that brought you the Internet, is funding a set of projects to develop better prosthetic arms. The first project seeks to create a working arm (including hand) with a revolutionary neural interface by the end of 2007 -- the important part here is the neural arm-brain interface, which promises to replace the traditional mechanical interfaces. The second project should have the arm ready for clinical trials (and hopefully FDA approval) within four years.
Much buzz has surrounded this project, partially because Dean Kamen is involved. Kamen is best known for his creation of the Segway, but he was also involved with the iBOT wheelchair (which can, among other things, go up stairs) and several other inventions.
The first reports of Kamen's new robotic arm are in, after Kamen gave a talk on the arm at TED. While there's no good transcript or full recording of the talk yet, here's a camera phone video and a first-person account of the talk. Even judging from the poor video, this looks like a major advance in prosthetics.
(Links courtesy of Gizmodo.)