Clem has a excellent overview of the tunnel and urban development concepts offered by a group calling itself Innovation Place. You can see some of their award-winning presentation or read more about the plan at Palo Alto Online. Clem's explanation of their ideas:
The crown jewel of Innovation Place is a complete transformation of the University Avenue station area, as envisioned in the team's graphic above. High speed rail or not, this area of Palo Alto is in dire need of a redesign; today, access between three important zones of activity (the University Avenue shopping district, Stanford University, and the Stanford Shopping Center) is a circuitous and dysfunctional jumble that is both unpleasant and time consuming to navigate, whether by foot, bike, car or bus. Neighboring areas just a few hundred feet apart feel miles away from each other.
The remainder of the Innovation Place proposal consists of a 31-acre linear park adjoining Alma Street, featuring a bike and pedestrian path and reuniting the two halves of Palo Alto formerly separated by the train tracks. The additional cost of putting the tracks underground would be financed by selling $700 million worth of air rights for development.
Go over to Clem's blog to read the full details and see some very intriguing designs, along with Clem's thoughts on the concept's strengths and weaknesses.
Personally I think this is exactly the kind of work that Palo Alto residents ought to be producing. Rather than trying to say "no" to the HSR/Caltrain project, the thinkers behind Innovation Place have said "yes" to integrating it into their community. It would be wonderful if Menlo Park and Atherton chose to follow this model instead of wasting taxpayer money on a lawsuit that is doomed to fail.
As to the concept (which should not be described as a "proposal" at this point since it isn't at that level of specificity), I like it. There's the question of the possible roller-coaster effect of a high speed train entering a tunnel for Palo Alto only, and whether $700 million is enough to underground the route. It's also unclear whether Union Pacific will go along with this, as it would pretty much eliminate their ability to continue freight operations over that section of track (although they could theoretically revive the Dumbarton corridor and use the shared tracks along the rest of the HSR/Caltrain corridor north to SF). But this is absolutely something worth exploring.