This blogger wanted a portable OS that could run Firefox – he chose Damn Small Linux and now carries it around with hím.
Read it here
Only problem: its Windows CE. Designed for PDAs and mobile devices, wont run anything but CE apps. Especially wont run Firefox. And also there is the (not even asked) question of licensing. Im too lazy too dig, but Im pretty sure Microsoft did not intend their emulator to be used in that fashion.
Its a cool idea though. So I just wanted to roll my own. From what I did, it seems even simpler than the Windows CE version.