Particles also working, but you must add a 'ParticleInstance' modifier to the object that is the actual particle, and link the modifier to the object that is the PaticleSystem. Render option under the particle system is only for Blender's internal rendering. I played around a bit with your file, added 'hairs', flipped the normals on the emitter, added some randomness, etc... and attached the result back so you can have a look.
They don't look like hairs but this can be tweaked at the expense of insane memory and CPU usage