I happened to come across this post:
Homemade plastic on Instructables
which describes melting plastic grocery bags into molds by gently heating in canola oil. It also mentions that by pre-shredding them, you may be able to get a finer texture. I would guess you could probably feed plastic grocery bags through a paper shredder just fine?
I know nothing of the details of the plastics involved & whether it would be suitable for extrusion, but I figured I might pass it along.