I've had Debian Etch with the Xfce desktop on the $15 Laptop for a couple of weeks. It took up a lot less space than Slackware 12 with Xfce
Read it here
So I went in a different direction. I popped in the Damn Small Linux 4.0 CD (I know they're up to 4.2, but I haven't downloaded and burned the new ISO yet … I plan to soon).
Already the box seems much snappier. I'm using the toram boot code, which means the whole OS pretty much loads into RAM, but DSL does use the Linux swap partition on the hard drive. I find this to be a good compromise because I'm not committing to even a “frugal” install on the hard drive, and whenever I want to upgrade, I can just burn a new CD and use it — I'll be using the same swap space when needed, but I won't have to upgrade any files on the hard-drive install because I'm not doing one.