This sounds doable (I didn't -really- want to work on my thesis this week) but I'm not entirely clear how the libraries would work, I guess. Would they be a valid SVG document where each top-level group represented an item ?

Not quite, each item in the library will be defined exactly as it is in a normal document, i.e. inside <defs>. Take a look at share/markers/markers.svg.

1. Keep a copy of each library object used by a document in each

document itself.

Yes.

Thus, the document will be editable, but you could (say) open a library and "update" the linked objects.

Updating a symbol from the library is not implemented but can be done easily using inkscape:stock_id attribute for matching.

is that you don't have to find / access the library to edit the lib object -- it essentially keeps a local copy. The downside is the explicit update step.

Yes, and this is the only way to make SVG editable/viewable outside of your system.

2. Keep the library files separate. This means that to view/edit a

document, you'd need to be able to access the libray, and the document would have to know how to find the library.

I'm not sure this option is workable with SVG.

exist as Free Software. Can I buy the developers a beer?

Sure, if you can catch us - we're scattered around the globe :)