Last year Paul did an internship a Nokia in Finland. He worked there on the integration of capacitive sensors in phones and clothing. After Paul was back we jointly followed up on the topic which resulted in an interesting set of guidelines for placing wearable controls [1].
The paper gives a good overview of wearable computing and interaction with wearable computers. 
In the work we focused on integrating touch sensitive controls into garments and accessories for a operating the music player integrated in a phone. The study showed that there are prime locations where to place controls on their body: the right hip and above the right knee (for more details see the paper [1]). It furthermore showed that it is not clear expectations of functions (e.g. forward, backward, volume up/down) with regard to controls laid out on the close.
During his internship he also did research on integrating touch into buttons, which was published at Tangible and Embedded Interaction 2008 [2].
[1] Holleis, P., Schmidt, A., Paasovaara, S., Puikkonen, A., and Häkkilä, J. 2008. Evaluating capacitive touch input on clothes. In Proceedings of the 10th international Conference on Human Computer interaction with Mobile Devices and Services (Amsterdam, The Netherlands, September 02 – 05, 2008). MobileHCI ’08. ACM, New York, NY, 81-90. DOI= http://doi.acm.org/10.1145/1409240.1409250
[2] Paul Holleis, Jonna Häkkilä, Jussi Huhtala. Studying Applications for Touch-Enabled Mobile Phone Keypads. Proceedings of the 2nd Tangible and Embedded Interaction Conference TEI’08. February 2008.