When I read this, I read "Keyboard which overlays the screen without taking up lots of screen space" by being transparent or something...
That in itself sounds like an awesome idea.. I could see it acting like this:
SIP pops up, screen stays the same size, but the keyboard is transparently shown. If you want it to be less transparent (more opaque) you do some finger slide action to the right, more transparent, slide left... Otherwise, use it just like a normal SIP.
I'm thinking transparency adjustment might be necessary to see the smaller characters in the SIP, like .,;: etc.
Maybe I should suggest this to the Touch Pal folks.