'The Blair Witch Project' really is, in some ways, the mother of all "found footage" films. I remember when they announced a sequel, the ill-fated and poorly-received 'Book of Shadows', thinking that they were making a mistake by simply returning to the woods and doing more spooky stuff. I wanted to see them think well outside the box--actually outside the "found footage" box entirely. I wanted to see a movie about the people who found the "found footage", and actually do more with the "true story" psyche-out that the original played so well (for all that it did a lot of other things so badly.) My film idea started like this:
We open with the ending of the last movie. The two remaining characters are racing to the house, into it and through it. There are screams, the camera is shaking wildly. The whole thing is designed to evoke that creepy memory...and then suddenly the action pauses. The whole screen just stops dead, in a crystal-clear freeze-frame. A hand reaches in to point to one of the characters. "There. Do you see that?"
We pull out, to see a police station. Three homicide detectives are watching the footage on a DVD player in a conference room. "Look at the clothing." She rewinds the footage, and points to the same character a minute earlier. "Look at the shape of the head." She hits 'play'. "Now watch again." The footage runs forward a bit. "See the jump cut? That's where they inserted the footage of the actors." She lets the film play again as she talks to her fellow officers. "Sanchez and Myrick murdered those three kids. They hired actors to play them, and released the snuff film to all of America to watch. We're dealing with the sickest psychos we've ever tracked, and they are covering those tracks even now. If we want to catch them, we're going to have to act fast."
The movie itself would be a taut police procedural, with the directors of the last film appearing as characters in this one. The plot would revolve around an attempt to prove that they're actually serial killers who are taunting the police by "remixing" the footage of their crimes with fake footage so that they can produce actors on cue who will admit to shooting those scenes as part of a film. Possibly there'd be some sort of supernatural twist at the end, a "real" Blair Witch who's making them kill, but I think it'd be better if you just took the "it was all real" element to its logical conclusion. Assuming Sanchez and Myrick had a good sense of humor about it all, I think it could be fun.