It exists in Canada at least in the Air Miles program. They say that 80% of redemptions are for merchandise or services, not for air travel. You earn your miles primarily by buying merchandise or services.
http://www.airmiles.ca/english/default.asp

Occasionally the airlines have special promos, e.g. Air Canada just had one where you could get special luggage, aviator's jackets etc. for your travel.

[This message has been edited by BlondeBomber (edited 08-26-1999).]