To give a ridiculous example, could you have a water app/service that stayed on the display AT ALL TIMES (or perhaps only when not actively using another application) and caused ripples to occur when you touched the screen? I would not want an app like this, but it’s just an example.
I know there is a live wallpaper for this, but it is in the background. What if you wanted the affect on top of your icons and widgets and UI as well?
Is this possible?
If you write your own firmware, yes. Android SDK applications cannot do this.