hahaha that is classic
but i never heard of it outside sweden
This game is actually very famous world-wide!
It's called "The Exquisite Corpse".
The Surrealist Art movement used the game frequently for ice-breaking and brainstorming, and Bauhaus (the Goth band, not the German art school) famously named a B-side "Exquisite Corpse" in which each member of the band wrote part of the song without having heard the parts that the others wrote first. The results were very silly, and a lot of fun.
Here's the obligatory Wikipedia entry:
http://en.wikipedia.org/wiki/Exquisite_corpse
(note, the Wikipedia entry is PG-13 in some sections. You've been warned)