As an initial step in this project, here is some of my brainstorming: I'm aiming to power the entire device from a single CR2032 coin cell battery, it will have 8 LEDs to show the direction of north, and have at least 1 push button for user interaction. For functionality, I'm thinking that the user will just press and hold the button to display the direction of north on the LEDs and then the system will be disconnected from power when not in use. From some initial searches, the MAG3110 from Freescale seems like it may work, and I will probably end up using a small AVR chip for the microcontroller, as I don't have a PIC programmer at the moment. It's a fairly simple system, but I've included a block diagram of the system as it currently stands, and I doubt it will change too much over the course of the project.
System Block Diagram: