Hi,
Neat idea! I think I agree with Erik and fire crow that a full kernel
and OS might be overdoing it, at least a little.
I think that if your game is already a full program, rather than an
alternate reality game (A.R.G.; in which case a fully physical
computer might be a great idea), it might be simpler and much easier
to control if you make the terminal as simply part of the game. For
example, in some computer and video games the player's character can
walk up to computers and use them. In those cases, the computer is
essentially just a set of functions and some scripted sequences of
text.
This YouTube video of Fallout 3 might be a good example of this:
http://www.youtube.com/watch?v=ZEoXEmo6D2s&feature=related
Like I said though, if you're making an ARG, you may want a real,
physical computer for players to use. But if you're making a game with
a simulated computer inside it, it may be far simpler to just program
the code and interactions and design the graphics and have it be
simply part of the game's code. Sadly, either way is a bunch of work.
I hope this is helpful,
pikpik