It is good mental excercise to play for an entire session without looking at the keyboard once...
How often would you recommend doing this? Once each day for a certain length of time? I was thinking that one daily 20 minute sightreading session (strictly no looking) would be good.
Also, I suspect that some of those who boast that they "never look at their hands" are picking up positioning through peripheral vision.
Personally I almost never have to look at my hands when I'm sight-reading except only to glance occasionally on jumps. At first I looked but then I started trying to play without looking and gradually built up my ability to find the right keys by ear and feel. I definately could not look as far ahead in the music when I had to look at the keys. Most pianists I know don't look when the are sight-reading either though they aren't always aware that they aren't looking (if that makes sense).
I think it is something that will come in time unless you develop an unhealthy dependance on looking early on. Since I worked specifically on not looking at the hands early on I think it came faster for me than it would have otherwise.
There is definately a huge benefit to not looking at the keyboard IMHO and I don't see why one should have to look for simple things likes seconds, thirds and octaves which should be like second nature to most pianists anyways. If you look at it from a pure energy conservation standpoint, looking at the keys for trivial skips and steps is euivalent to wasted energy, energy that could spent on the music instead.
That said you have to first look at the keys before you learn to play w/o looking at them (unless you are blind) and my approach to this was to learn how to navigate the keyboard by touch instead of trying to approximate distance blindly. Since the keyboard is just a repetative pattern of 3 blacks and 2 blacks it is easy to learn how to find any key on the keyboard by feel without looking. Learning to find the keys this way makes it much easier to not look.