I'm still thinking about it. I've been in talks about a partnership with someone else who is also interested in creating coins. My biggest roadblock is funding, since I'd need around $6,000-$8,000 to make this a reality, and I just don't have that kind of money right now.
I have been thinking of the same thing but came to the same conclusion that it needs $5k-$7k start up funds to get the proof made and the first batch of coins. The other big issue is trust. I suggest you think about spitting the addresses and using a second party so no one person has the private keys. Ultimately, trust in the person creating the private keys will be the biggest challenge to this endeavor. One way to do this is have a tamper-proof seal on both sides of the coin. One person attaches the first half on one side, ships it to the second party and they attach the other on the back. Then no one person has access to someone else's bitcoins.
A cheaper option is custion scratch off cards with the same concept but use a tamper-proof label on the back that you add to go with the factory sealed one on the front.
Another way to add trust to mass circulated physical bitcoins is to create/link a WOT online with a private code on each coin to verify the person who is giving it to you is generally trustworthy.
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