Was thinking of making a file system notification observer to auto-add changed files to a git index on an external drive or server. Like Time Machine on a micro scale.

It would be handy in a game development context for artists, who often edit scores of assets at a time and chafe at programmer-style version control. Thoughts?

If you were on Linux, maybe you could do something with FUSE. Your FUSE driver could present the repository as a file system, with .commit_id directories for historical data.

Do you mean something like TortoiseGit, if you were in Windows?

Probably not. Does TortoiseGit commit every time a file changes?

TotoiseGit, as far as I can tell, is still in the discussion and planning state, but it is the natural progression of TortoiseCVS and TortoiseSVN. They are effectively plug-ins to the Windows Window Explorer (not to be confused with Internet Explorer). You can see the state of files by the icon's color or shape. You can right click files or folders to perform version control functions. the nice thing is that the application can be run from the file system browser. GIT, of course, follows a different paradigm, but I imagine the UI to the user to be very similar.

That's something pretty different, then. TortoiseGit is—or would be—a UI for git. Same idea as Tortoise SVN. The OP was talking about something quite different.