I've seen a couple of ideas here that I like. The SIMPLEST would be of course to have a generic set of medals, badges, ribbons, and awards based on your performance (getting killed is 99.99% irrevelant because it would only impact your K/D ratio).
I'm thinking version 1.0 is generic - just a bunch of stuff to earn - like silver wings for 100 kills, 1000 gets you gold, 10000 gets you platinum, and diamond for those who manage to get 100,000 kills. A mudhen badge for blowing up 10,000 points of stuff. A mudhen with gold bar for doing it in one sortie/flight. That's what I'm thinking of.
You should be able to see your progress as you go along - set goals for your online activity - know that you need to kill 10 more tanks to get a ribbon, capture two more towns for a medal, or shoot down two bombers for a clasp. All the awards and medals would be greyed out and your progress would be underneath to show you what you need to do to earn your awards.
Version 2.0 could do it by country. For example, Birtian, Germany, Italy, Japan, Soviet Union, and United States. Essentially you could have six different pilot careers to manage. You could upload a picture of your face into it. Make up a bio. But it would be outside the game - you could link to it inside, but it should be web-based. But medals and awards earned are from the country aircraft your flying. For example, if you fly all Soviet aircraft, you earn points towards your Soviet pilot. Etc etc.