We've been a bit quiet on this for the past few months, but I wanted to point you towards some code that's been started:
It's raw and incomplete, but definitely coming along. We've done a few test runs on actual buses to test out the location collection, which you can see here: http://bustracker.demo.topplabs.org/tracker/map
There are two primary pieces so far:
1) A mobile app (iphone/openmoko) for collecting and publishing real-time location info, using gps/cell triangulation/wifi
2) A server app (django) that accepts the location data and serves arrival predictions
As has been mentioned elsewhere on this site, it would be really fun to experiment with other combinations -- for example, using official bus location data (in cities where it's available), or using crowdsourced data (from brightkite/foursquare/etc). In theory, either of these approaches could be plugged in.
We've recently updated the project documentation, so there are now installation instructions and a mailing list for tech discussion. Also, please join us in #openbustracker on freenode.