I think you're asking the right question, but I don't have any idea of what the answer is. It doesn't seem like answering that question is something you can crowdsource to us. You need a vision of what you think a great news site will look like. Right now, you're asking us for a vision. As users, we are mostly going to think of features you could implement on a current site like Digg, but if you want to challenge them you need to have your own innovative view of what it will look like. Reddit was "front page for the web," and "democratizing news." What ultimate goal are you trying to achieve?

So, I would say come up with your own vision and launch it ASAP because it will probably change over time. I think when reddit launched, they put a lot of emphasis on the recommendation algorithm, which no one ended up using. They didn't even have comments in the first version, yet the comments are now the most important part.

Edit: Try reading the books "Positioning", "Innovator's Dilemma", and "Innovator's Solution." Your challenges aren't technical ones, they're marketing ones. You're taking on big established websites, and you need to position your website in the correct way to even have a chance at taking them on.