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This reminds me of something I read about the OLPC project. Don't they do something similar?
I wonder if this could also be used to create a sandboxed AppDir environment. (Just thinking aloud really -- I've had something like this in mind for a while.)
Edited 2009-05-26 20:52 UTC
The current release of OLPC uses Linux-VServer to implement part of Bitfrost. Effectively, every application is contained by running it alone in its own virtual machine. It can impose resource usage restrictions far beyond what I believe SELinux to be capable of. (I might be wrong on that last part.)
Hi,
I think the implemented Bitfrost moved past using the vserver patch into using the rainbow daemon.
http://wiki.laptop.org/go/Rainbow
Here's an old mail where Michael Stone explains why he disn't use SElinux:
http://lists.laptop.org/pipermail/security/2008-January/000370.html
Fascinating stuff 
I would think, this concept should just go to a mainstream. All binaries are untrusted. And all scripts are untrusted. If you have a worm, it can modify any script or binary and do something unexpected. So, if some component can do only explicitly described actions and nothing else, it would create a safe system by definition.



