Trying out a couple of distributions I found:
Tinycore (2.11): Booted from a pen drive and ran ok in text mode. If allowed to run X it ended up with a blank (dark) screen with an arrow cursor in the centre.
Puppy (5.0.1): Booted up from an attached USB CDROM drive. The desktop didn't appear in all its glory - but the menu bar was there at the bottom along with the Menu button. (I assume this restricted view is due to the limited amount of RAM. 20M Free is shown on the menu bar).
I could run things via the start menu - such as the Internet Setup Wizard, but everything happened very slowly thanks to the USB1.1 interface. Things should be much quicker if you boot from the IDE interface!
Any comments? email me. Last update June 2010