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I would like to improve the TOR network, where the exit nodes are a vulnerability to concealing traffic. From my understanding, traffic to .onion sites are not decrypted by exit nodes, so therefore - in theory - a .onion site web proxy could be used to further anonymize traffic.

Yes/no? perhaps you have insight into the coding and routing behind these concepts to elaborate on why this is a good/not good idea.

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    +1 for "i would like to improve the TOR network" (excellent work as it stands, but always needs fresh ideas and more hands).
    – doug
    Nov 12 '11 at 7:35
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It would make no difference. The proxy would just serve the same purpose as the exit node, still sending out the decrypted data. All it would do is allow you to choose your exit node.

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The issue with the edges is not that they can trace it back to you. That is very difficult. The issue is that they can sniff your web traffic and gather thing such as plaintext http passwords, email logins, websites visited and other juicy bits of information.

So it does nothing because the tor network is already set up to be a anonymous proxy service.

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