Super small, simply digital compass at a reasonable price would be fab if you’re so inclined 
-marc
The NVE giant magnetoresistive sensors are about $US10 each for a single axis. Add in a tri-axis accelerometer to sense which way up you are and life is getting to the $us50 mark in parts before you layout a board.
I’ve just done this as part of a larger board and while it works, it’s definately not a $5 exercise. 
It’s tricky. We’ve looked into it more than once. There are already $50 modules that work very well out there. And these days you can buy one for your car that costs $20. I’d recommend finding two of these cheaper units and destroying one in order to figure out how to use the second.
-Nathan
I purchased the CMPS01 magnetic compass module here in england for 25 pounds sterling a few weeks age. It has IIC bus and i interfaced it to 8 pin pic and 433 mhz tx. (receiver on ftdi rs232 to usb to laptop on which is running virtual compass -written in Delphi and assembler and using DLL ftdi drivers.) Works a treat since transmitt 0-255 and convert to 0 to 360 degrees with a bit of simple maths!.
This compass module also has pwm and hilo byte 360 degree readout.Led light when pointing magnetic north and led lites and buzzer when pointing to Mecca.(Magnetic declination adjusted.)
This month’s issue of Circuit Cellar (#183, October 05) has an article about the HM55B module titled ‘Direction Finder’ ( page 68 ). It looks like an exellent ‘digital compass’ solution based on a dual-axis magnetometer. The chip is a Hitachi HM55B and the module is made by Parallax (also called HM55B).