Mavrothal has been promoting PuppyLinux as a lightweight OS for the XO for a long time. Last year he began releasing polished “XOpup” builds, most recently XOpup 2.2 - providing the most light-weight desktop around for the XO-1 and XO-1.5.
Recently he published a build system that lets anyone build their favorite Puppy-distro for the XO, and has used it to package the latest release: PuppyLinux Racy 5.1.110 (currently only for the XO-1). This 90MB build includes a softphone app, printing / camera / CD support, and the Mozilla Seamonkey suite (browser, HTML editing, email, newsfeeds, and IRC).
He’s even taking feature requests for the build – give it a spin and let him know what you think.