hi
Just a idea for sensing posistion, you could use some resistance wire along the lenght of the guitar wired as part of a voltage divider, the more wire the current has to go through (posistion) the higher the resistance, the voltage could then be measured by a analog input on the arduino.
Lee
Good in theory but a nightmare mechanically. Over time the wire oxidises and makes intermittent contact. Plus the wire resistance is too low meaning it will draw too much current.