How small can a Linux distro be? Very small. We've had distros that fit on a 1.44 MB floppy and are used for routers. For a desktop/GUI type distro though, the smallest I've seen is DSL - Damn Small Linux. I found another one a little while ago. Tiny Core Linux:

"Tiny Core Linux is a very small (10 MB) minimal Linux Desktop. It is based on Linux 2.6 kernel, Busybox, Tiny X, Fltk, and Jwm. The core runs entirely in ram and boots very quickly."