Everybody remembers the Pikachu Beetle but very few also remember the Gold/Silver follow-up, the Lugia PT Cruiser - and yes, this was real and went around to Nintendo-sanctioned events in the early 2000s with the Pika-Beetle.
As far as actual merchandise goes, I've seen some really silly PokeSwag over the years, but I remember one of the silliest of them was the little Pokemon Polly Pockets they released about 98-99 when Pokemon first became popular.
The one I had was yellow on the outside, came with a tiny Charmander and Eevee, and was a city scene. It did literally NOTHING. I do remember it came with a bridge you could hang off the side, though, and connect with the other sets, so you could have the city scene, the forest posted above, and the third one (I don't remember what it was, but I think it had Squirtle and Bulbasaur with it) and then have all three connected and do absolutely nothing.
That, and they were like 10 bucks a piece I think. Oy! I bought it cause I thought it was cool, but it was probably the one thing I bought that I almost immediately looked at when I opened it and thought "wow, this is actually really stupid... and kind of makes me feel like a girl for getting it". >_<
Of course, I got over it pretty quickly, because I also bought the 2BA Master CD the same day. That thing is STILL on regular rotation on my iPod to this day!