A Propeller Platform USB reads the flute and feeds the input into a SID chip emulator.  Gadget Gangster writes…

Okay, it’s actually a recorder, but this project will allow it to make sounds like a flute, recorder, or even weird space noises.  It uses a breath ‘blow’ sensors and a Propeller Platform running SIDcog for the sound.

You’ll also have a choice of converting the instrument to become fully electronic, or adding synth features to the existing instrument.

Howto on Gadget Gangster and Instructables.