Assuming the penny is ferromagnetic you might be able to use DC to drive the electromagnet (i.e. you don't need to excite a current in the penny to get it to be

Assuming the penny is ferromagnetic you might be able to use DC to drive the electromagnet (i.e. you don't need to excite a current in the penny to get it to be attracted to the magnet). Also, the magnetic field is going to be proportional to current, not voltage (and because electromagnets are highly inductive, you can't assume the two will be linearly proportional). In fact you might be able to use the current rise in response to a voltage pulse as a measure of the inductance of the magnet/penny system and use that to measure the distance. The old levitating spheres that The Sharper Image sold used an optical system (IR LED and photodiode) to detect the position of the sphere and modulate the magnet (arranged horizontally just above where the sphere would hang), but that might not be as impressive as having it hang out in space. Sounds like a tricky problem :)