The disk space and low computation speeds are both major issues, especially for the Default mode (I think you've probably made a program as fancy as is possible with your text echoer), but would probably be easier to handle with, say, the stats I have set up for working on SenbOS.
One major way I see to potentially improve the ability to make fancy stuff (like OSes, games, etc), would be to replace the current IO stream's binary representation with one pixel on an 8-bit-color monitor. You'd have to choose between an 8-bit RGB palette (with 3 bits of R & G and 2 B, or similar), or an 8-bit grayscale, BUT, the payoff would be that actual output would likely be faster, and you can actually draw on a pixel-by-pixel basis with relative ease - the main challenge becomes picking where the pixel actually gets drawn (e.g, where in the 1-dimensional array of currentPixels is the output pointer), and I'm not sure if there's a way TO pick that. Need to poke through the interpreter code more.
If that is possible, then the main issue remaining is that getting mouse input is impossible, and as such your OS probably has to be either command-line, or you control the mouse cursor with arrow keys or something. Also, no first person shooters, but that's kind of a given with the super-low processor speed :P