As best I can tell, this article in Neuron reports that an MRI can be used to determine what the subject is currently seeing, based on several hundred past MRIs done when the subject saw different random images. Pink TTentacle reports further:

The scientists were able to reconstruct various images viewed by a person by analyzing changes in their cerebral blood flow. Using a functional magnetic resonance imaging (fMRI) machine, the researchers first mapped the blood flow changes that occurred in the cerebral visual cortex as subjects viewed various images held in front of their eyes. Subjects were shown 400 random 10 x 10 pixel black-and-white images for a period of 12 seconds each. While the fMRI machine monitored the changes in brain activity, a computer crunched the data and learned to associate the various changes in brain activity with the different image designs.

Then, when the test subjects were shown a completely new set of images, such as the letters N-E-U-R-O-N, the system was able to reconstruct and display what the test subjects were viewing based solely on their brain activity.

Possible applications:

According to the researchers, further development of the technology may soon make it possible to view other people's dreams while they sleep....

The researchers suggest a future version of this technology could be applied in the fields of art and design -- particularly if it becomes possible to quickly and accurately access images existing inside an artist's head. The technology might also lead to new treatments for conditions such as psychiatric disorders involving hallucinations, by providing doctors a direct window into the mind of the patient....

Cool and scary. Thanks to my friend Haym Hirsh for the pointer, and to David Byrne for the mental soundtrack.