I don't even know if a solution exists or not. Here is the problem in detail. You are a program that is accepting an infinitely long stream of characters (for simplicity you can assume characters are either 1 or 0). At any point, I can stop the stream (let's say after N characters were passed through) and ask you if the string received so far is a palindrome or not. How can you do this using less sub-linear space and/or time.
Yes. The answer is about two-thirds of the way down http://rjlipton.wordpress.com/2011/01/12/stringology-the-real-string-theory/
EDIT: Some people have asked me to summarize the result, in case the link dies. The link gives some details about a proof of the following theorem: There is a multi-tape Turing machine that can recognize initial non-trivial palindromes in real-time. (A summary, also provided by the article linked: Suppose the machine has read x1, x2, ..., xk of the input. Then it has only constant time to decide if x1, x2, ..., xk is a palindrome.)
A multitape Turing machine is just one with several side-by-side tapes that it can read and write to; in a very specific sense it is exactly equivalent to a standard Turing machine.
A real-time computation is one in which a Turing machine must read a character from input at least once every M steps (for some bounded constant M). It is readily seen that any real-time algorithm should be linear-time, then.
There is a paper on the proof which is around 10 pages which is available behind an institutional paywall here which I will not repost elsewhere. You can contact the author for a more detailed explanation if you'd like; I just had read this recently and realized it was more or less what you were looking for.
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