It sound like a in-hand theremin.
A theremin is a box with 2 antennas, 1 antenna changes the tone the other the volume.
Here is a pege with some explanation and schematics. http://home.att.net/~theremin1/
I have seen some conductive foams that change resistance as they're compressed. That wasn't what it was meant for, but I thought it was interesting at the time. Might be something you can use.