This is something I've wanted for a while too. Interestingly enough, Guy Kawasaki posted this just the other day (he's on their advisory board): http://www.feedhub.com/

Disclaimer: I haven't given it a thorough evaluation yet

I wonder why this needs to be a web service, unless they do the "people who liked x also liked y" thing. Otherwise, I'd rather have this as a local app.

This one has been bugging me too. There's simply too much noise and not enough signal in most of those sites. Feedhub looks like an RSS filtering/recommendation engine. I'm not sure if that's the same thing we're talking about.

I don't want to do it with RSS; I want a web site that organizes the information. I want the recommendation page of Reddit with a better algorithm and stories across digg, reddit and other social news sites. There is probably no reason to limit it to social news sites.

Is it legal to scrape from other news sites? Wouldn't that scare off acquirers?

I would start a new reddit, scraping unofficially at first until the bird can fly on its own, and then dropping it.

I'm working on something similar at SeekSift http://www.seeksift.com/ though I'm still tweaking the recommendation engine.