Is it possible to reverse engineer a chip design?

ChipWorks has an excellent blog about doing exactly this, with lots of great pictures here.

FlyLogic also has an excellent blog. It is here.

The short answer is it is absolutely possible. IC DIEs are basically really small circuit boards. You can reverse engineer them pretty easily, it just takes a different tool set.

I want to particularly call attention to some posts flylogic did on reverse-engineering ICs (how topical!) here and here.

^{Image from flylogic website}

Yes. There are companies out there that specialize in this. This is done all the time, although it's more of an art than a science. Usually they do some wacky chemical and mechanical etching process to progressively strips off the layers of the chip (like the layers of a PCB)-- taking detailed photos of each layer. Normally, these companies do it to help people like T.I. and Intel figure out why their own chips are failing, but you can bet that there is some illegal uses of this too.

Here's an interesting and relevant article that I just ran across: http://www.forbes.com/forbes/2005/0328/068.html

And another link: http://www.siliconinvestigations.com/ref/ref.htm

Another way to copy a chip design is to emulate its functionality using an FPGA. Many emulations of older chips like the Z80 and 6502 are available. Some students even produced their own version of an ARM device and made it available via the Web, but had to delete it when ARM threatened legal action.