Check out Angela Yuan’s Etch-A-Scetch Clock. An Arduino powers a few stepper motors that clear the screen once a minute and then draw the current time.

It looks like there is a laptop that is sending commands, presumably time updates, to the Arduino via processing. Her site is a little scant on details, but there are a few useful links that will give you a good start if you’d like to build your own.

Etch-A-Sketch Clock – Link