I'm thinking something like an eggbot with a dremel. it would need control of the drill head height and lateral position, and a stepper for the gear rotation.

This would be a nice little project to put together after building a reprap, since you could use your steppers and electronics to control the axes.

I've attached a very quick mockup. The orange part is the dremel, the yellow is the printed frame, the blue is the gear blank, and the green is printed racks

I think you can hob simple gears with just a rotational axis plus a a rotary cutting tool mounted on a linear axis. the third axis is a plus, but optional.
Sort of like this:

www.youtube.com/watch?v=ELCU52OnGbg

so one could imagine a simpler rig...

No Ii think you'd still need a second planar axis to control tooth depth. And a dremel cutting bit, instead of the cutoff disks, would allow you to cut helical or herringbone gears