Click on this only if you have eight minutes to kill: The video is that long, plus however long it takes to stream it on a dialup. It's in Japanese, but magic tricks work even if you can't understand the patter.
I haven't a clue how he does this.
LATER: It's discussed in this MetaFilter thread. Several theories are put forth, some clever, some absurd. I think everyone agrees, though, that this guy (Cyril by name) is good.