Can't decide which research project to work on as an undergraduate to prepare for graduate school?
I am by no means an expert in the realms of academia, prestige, or research papers and am an M.S. student myself, but my logical evaluation of this situation is that you probably have more to gain by doing project 1, for the following reasons:  

1) Professor 1 is probably a better connection to have in the long run, especially if the school they went to is one of your top two picks. He/she will probably be able to be more helpful with explanations and sticking points during your research than Professor 2 as well, if only because they share a more similar background to you and can understand your mindset better.

2) Project 1 seems (from your description) as though it is more likely to get your name on a published paper, which is always a perk when you put months of work into something. 

3) Project 1 has fewer people involved. More collaborators is not necessarily a bad thing, but it does allow for more time lost to communication (or miscommunication), introduces more potential for error, and almost certainly requires some overhead in the form of proper project management in order to efficiently utilize everyone. A two person project, while it can certainly benefit from the same processes, would not need nearly the same amount of organizational structure. Another thing to mention here is that having a majority of undergrad researchers on the project may mean that it goes slower than you might like, due to the fact that they are less experienced than you

Keep in mind, though that bigger groups introduce more perspectives and usually better ideas. Additionally, the undergrads at your school could be brilliant and leave you behind, rather than the other way around  

4) Project 1 is more directly aligned with your interests and should serve you well going forward. Especially since you have essentially been offered complete control of Project 1, you can shape it so that it directly feeds into the next project you want to take on after you complete this one.

5) Finally, I would like to recognize both of the original commenters for their contributions, because they are absolutely right (Sorry for omitting tags, fairly new to SE):
    - a) If the project is not interesting to you, don't do it! I only wrote this as a guide with the assumption that you were equally interested in both, because you said both were "equally as good"
    - b) Evaluate the professors based on their own merit and what you know about them personally. If you don't know them well, try to find students that have had their classes and ask them. Try to get a feel for their personality and ask yourself if you're comfortable working with them for a long(-ish) span of time.