HI everyone. I remembered about this post the other day and thought i would let everyone know how the project was going.
I decided to go with a ducted fan for simplicity (as a proof of concept). The fan is 90mm and uses a rather large brushless motor that on max thrust (about 4.5kg) uses about 2.5kW of power!
I have finished the majority of the airframe just have to mount all the electronics on top. Then i can start the fun part......Programming! I plan on using a PID controller for each axis (and a 4th for roll) getting one axis stable at a time (fixing it in the other two). I am using a relatively cheap 6 degree accelerometer and gyro package that will accumulate errors relatively quickly so i don't expect more than a 1 minute hover before the error gets too large. The batteries wont last much longer than that anyway!
I may also need to add in a small motor with a spinning mass to control roll in the z axis, although i am hopping to avoid it with a combination of initial bleeding out of torque and fins.

Here is a quick video of the motor being actuated:
http://www.youtube.com/watch?v=PnRPqYd5k6QYou may notice the ear muffs on the table..... when its going the fan is really really loud!