I've actually considered using this approach to build dynamic video game music.
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Have you seen the 'infinite jukebox'?
http://labs.echonest.com/Uploader/index.html
It stretches or compresses existing music by jumping back and forth to parts of the piece that sound similar, which could be handy for dynamically adapting the timing/duration of existing pieces to the players situation.
That is an awesome idea. I can imagine it would be cool in your standard one-on-one fighting games where the music could get more intense when then battle becomes more intense.