• the Wii "sensor bar" is actually just a pair of IR sensors. That's IT. (youtube)
• you can actually replace them with candles (digg)
• (you can even replace them with a single candle, but it doesn't work quite as well)

My observations

• Yes, only a single light works (eg. just put black tape over one end of the sensor bar, and it still mostly works)
• You can try to set up a grid of points, but the Wii internally tracks only two points. The Wii DOES see all four points (eg. when viewing it in the Sensor Calibration screen), but when using it in pointer mode, the pointer will skip backwards when it loses sight of the original point(s) it was tracking and locks on to two new ones. But this seems to be a limitation of the Wii itself, not the controller. So a Wii update could potentially add the ability to support a grid of LED's. Or, a PC driver for the remote (once someone figures out how to hack the bluetooht interface) could easily support this.
• Things that show up on the calibration screen, coolest things at the top:
  • a whole string of christmas tree lights
  • candles
  • lighters
• Things that don't seem to show up:
  • the stove burner