See http://c64os.com/ for more info.
Known as C64OS, it squeezes everything it can out of the 8 bit processor and 64 kB of memory. The new OS includes switchable desktop workspaces, a windowing system, draggable icons, a Mac-style menu bar at the top, and drop-down menus for the icons (known as aliases in the demonstrations). The filesystem is largely revamped as well and enables a more modern directory system to be used. There are still some limitations like a screen resolution of 320×200 pixels and a fixed color palette which only allows for a handful of colors, but this OS might give Windows 3.1 a run for its money.