As far as I can tell its possible to set up an org to do the following things:

-- Give grants to individuals and other charities

-- Invest tax-free as long as all money is granted out charitably

This seems really useful. Let's just take it as a premise that giving grants to individual EAs is a good idea. Lets also assume you expect to have a decent amount of capital gains. You can just give gifts but then you pay taxes on your capital gains and cannot deduct the gift. This is way worse than routing things through a foundation.? It seems you can donate assets/cash to the foundation. The foundation does not need to pay any capital gains tax when they sell. And you can deduct when you donate the money to the foundation. I really wish I had held some of my crypto inside a foundation at the start of the year.

Has anyone done this? I believe it's legal. Does anyone have advice on setup costs and the best service to use?

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Giving money to individuals through private foundations is pretty cumbersome, and requires getting pre-approval from the IRS to run a scholarship program; then you have to stick to the same method of selecting recipients as the one the IRS approved you for, and it generally has to be an open application process. 
If you give money to individuals through a public charity it's a lot easier, but to qualify as a public charity you have to meet certain financial requirements. 
Another way of doing this is to just use a 501(c)4 social welfare organization. The downside is that donations to c4's aren't tax deductible, but the upside is that they are tax exempt (so you wouldn't pay any capital gains on donated assets). Giving money to individuals through a c(4) is easy. 
A last way of giving money to individuals is to give people no-strings-attached prizes in recognition of past accomplishments through a private foundation (a la MacArthur Genius Grant or Nobel Prize). The upside is you can use a private foundation and have maximal discretion over who gets the money with minimal reporting requirements. The downside is that you can't actually require people to do something specific with the money. 

Oh wow. This was super informative. Thanks so much.

You may be interested in my post on this topic! https://forum.effectivealtruism.org/posts/mMu2BpRQ8oqtvEZjm/ea-could-benefit-from-a-general-purpose-nonprofit-entity. I mention your two use cases of enabling individual granting and tax-free investing as some of the benefits of setting up such an entity.

I haven't encountered a team/project specifically working on this (Rethink Charity's fiscal sponsorship mentioned in the article comments is probably the closest thing to this); let me know if you'd like to discuss further or collaborate!

The individual receiving the grant has to pay taxes on it, so the net benefit may be somewhat less than you're anticipating.

If the funds are disbursed directly from the charity on project expenses (a charitable purpose), rather than to the person for their general use (not a charitable purpose), it is possible to avoid taxes. For example, EA charities hiring personal assistants for academics.

I am aware but the benefit is still quite large.

Rather than setting up a charity, a Donor Advised Fund (DAF) is a good option for this purpose. This post may be helpful: https://forum.effectivealtruism.org/posts/qYuehBsAe6Ri6PZvL/a-comparison-of-donor-advised-fund-providers

I think they can only disburse to other charities, not individuals.

1Josh Jacobson10mo
They may be willing to direct it to a charity that will give it to an individual, eg https://www.theissresearch.org/ [https://www.theissresearch.org/] .

This would have been way better than holding everything in my individual account. But it doesn't let you make 'grants' to individuals. We need something like a smaller version of EA Funds.