Option #1: Discuss in detail the significance of the fact that "Circular Ruins" is one of, or part of one of, the works of Herbert Quain. You should cite details from both stories (although you might choose to involve another story as well). Your discussions should have a single, clear argument, but what it is is entirely up to you.
Option #2: Get a copy of Don Quixote out of the library (or wherever). Read one of the chapters which is cited in Pierre Menard. After reading it (you might also want to read or skim a summary of the novel as a whole), present an argument which concerns Borges' choice of a passage, and the meaning or significance of that choice.
Option #3: Use the utopian (or, if you prefer, dystopian) vision of "Tlon, Uqbar, Orbis Tertius" to interpret the utopian (or dystopian) vision of Parable of the Sower. The details are up to you: you must use and quote both texts, and have a specific argument relating the two. My initial idea (it need not be yours) would be to use the utopian language of Borges' story to help understand the verses (perhaps even the style of the verses) in Parable of the Sower.