@itobenon: If you don't want them to ls /home, just change permissions: chmod 711 /home . About /etc/passwd is harder because many programs rely on reading it's contents (ACL implementation would be advised).

Yes, I was talking about virtualization per user.

Anyway, why not try selinux? RSBAC? grsecurity? I think you're looking for MAC/ACL implementations (they're hard to maintain but provide ultimate security)