This almost was my masters project.
1. Each player's wiimote gets connected to a wearable (a Palm or something similar)
2. Wearables are connected to each other through a WiFi or ZigBee mesh
3. You'd probably want optics on the front of each Wii Remote to push the focal length out a bit (narrow the field of view)
4. Each player's tag is switched by the wearable. When a trigger is pressed, each tag blinks out a short binary code identifying it.
5. The Wii remote could be more than just a gun - using the accelerometer it could be used as a wand for casting spells. It could also provide feedback, letting you know when you're being targeted if you cast a protection spell.
#5 is why this didn't end up being my master's project. The professor who was suggesting it was really heavy on that part. I decided I didn't want to become known as "the Wii LARPing guy". YMMV

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