I've seen several videos of multi-touch screens, but hadn't seen that one before. I'm a little suspicious about the first part being real. In several points the image started moving before the fingers, or didn't follow the finger's movement.
The leader in this type of interface is a guy named Jeff Han, and his demos show much faster motions and tight response between the fingers and the screen.
Here are a couple of links to his demos. Not specific about using a paint program, but with lots of image manipulation involved. In the first one he is demonstrating the process last year at a technology convention. The good part is a couple of minutes into the video clip.
http://www.youtube.com/watch?v=PLhMVNdplJc
This is another demo, on a larger screen, with no talking. There is a 30 second commercial at the beginning that you have to put up with:
http://multi-touchscreen.com/perceptive-pixel-jeff-han.html
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