Here is the list of projects that I have thought of. If you can suggest your own projects then that will be fine too but please let me know what you wish to do soon as you final grade will depend on this project. In many cases the "project" has already been implemented by someone, what you need to do is to make an installation of this implementation and provide detailed documentation on how it works and how it can be used.
---project list---
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Make linux multi-boot compliant and allow for modules to be linked at boot time without the need for initrd.
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Create a user-based dpkg system with installations on per-user basis. Start up scripts can be run by cron (@reboot)
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Software suspend improvements. Can there be a minimal kernel that only reloads a suspended system?
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Install user file-system modules and get them working for various "interesting" file-system extensions.
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Install a capabilities based system without a root user.
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Implement Copy-on-write or translucent file system.
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Create a "Live" installation of GNU/Linux on a CD.
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Install rule-set based access controls with GNU/Linux.