Apeiron, the Star Wars: Knights of The Old Republic fan Remake will be having first person gameplay, and the player will be allowed to switch between a first and third person view, it has been confirmed. The free game is looking quite good so far, but the developers will probably be looking for funding from fans later on in the form of donations.
Through their website, the team have said that before they ask for any funding, though, they are going to try and complete more of the game first, due to the track record of other similar remakes.
What they are doing is completely legal (at least according to the mod team themselves) as long as they don't charge people for it (and the remake does require a legal copy of the game), so provided they keep working on it, it should hopefully see the light of day. Whether Disney lawyers will find something that could halt development remains to be seen.