After doing some research I have refined my accuracy expectations to realistic levels. cr0sh is right, it is really expensive to do what i am trying to do. Ascension's laser based optical systems which can do this cost a little less that $20,000!
So I have decided to do this - use an IMU to sense the tilt and measure the distance of the hand held device from a base station. So, with three angles and a distance I can find the position of any point with respect to the base station(using some constraints in my application). However, this leads me to my next issue.
I need a way to measure the distance of a point from the base station. I can not use anything optical, since there are line of sight issues. I can not use a magnetic sensing since there will be large metal objects nearby. So I am pretty much left with ultrasonics, but there are issues with sensing angle (angle between the transmitter and receiver). Can you think of anything that will give me the distance between a transmitter, receiver even when the receiver is turned, say 90 degrees.