Yes, this sounds like it could be a great project...
By PPM, do you mean the usual mechanism for controlling Analog model aircraft servos? If so, Espruino already does this quite well.
For OSD, there are chips such as this one that would work pretty well: https://www.sparkfun.com/products/9168
I'm unsure if they do graphics, but you'd think that there would be one that does.
I think it would be quite an interesting project to start an RC Plane Autopilot project. It is actually my number 1 project in mind. I'm currently using ArduPilot in my planes/quads, so I think it will be fun to play around with the board in the air. With the event driven nature of espruino, I think its a perfect fit.
Distance sensor (HC-SR04)
Better MPU (MPU-6050?)
PPM signal generator/reader (found a project using arduino, http://code.google.com/p/read-any-ppm/downloads/list and http://code.google.com/p/generate-ppm-signal/downloads/list)
Possible to control an on screen display overlay right from the board with onboard camera? I know the OSDs I have seen are dedicated AVRs, so may not be feasible?
If you can't tell I'm a software guy by trade, still green with some of the low bits of hardware :)