I was recently pondering what I will be doing for my senior design project. My major is Mechanical Engineering, and I bicycle a lot so I've been trying to think of ways to measure the power output that a biker puts to the wheels. There are such devices, but they cost about $1000 US for "cheap" ones. My thought would be that you could measure the torque (being submitted to either the pedals or the wheels) and the rpm of whatever the torque meter is measuring. RPMs would be fairly easy to measure, and still have it instantaneous with optical encoders. I found these equations relating to power, torque and rpms:
Torque (lb.in) = 63,025 x Power (HP) / Speed (RPM)
Power (HP) = Torque (lb.in) x Speed (RPM) / 63,025
Torque (N.m) = 9.5488 x Power (kW) / Speed (RPM)
Power (kW) = Torque (N.m) x Speed (RPM) / 9.548
Measuring torque is a problem on a bike. It has to be very light, and not interfere with the operation of the bike. Like my full suspension mountain bike weighs only 25 lbs with a rack and rack pack on it. That's only a few pounds more than fairly expensive road bikes. I was thinking of ways to use some kind of load cells in the crankshaft, as that would probably be the easiest way to measure it, without re-engineering the rear hub and cassette assembly. Another problem is interfacing with the load cell, and having a way to automatically calculate the power with the given rpm. Doing it digitally would be way beyond me, unless there was a way to interface with a small laptop (cheaply) and write a small program to calculate the power. Maybe use the load cell, and amplify whatever signal it produces to something that is usable by the serial port of a computer. I would have to manually calibrate it somehow though. Also, the cost of all the load cells that I have found have been very inhibitive...
For a while I wanted to make something that you could set your bike on, and that could be a dynamo for bikers, similar to what they do for cars, but that would be to easy...
Any input is very welcome, I'm just tossing ideas around at the moment, but in the next year or so I hope to start working on this! This project I may be doing myself and funding myself (I don't want the school to pay for it, because they would keep it!), so it can't be too insanely involved... but sometimes insane is cool you know... 
-Nick