> 2Mb is the absolute minimum you need

BZZT wrong. If you include only the things you really need - ie no scsi,
no tcp/ip, and only minix fs you can run some things in 1MB. If you trim
the kernel page tables and file buffers down you can combine this with
a shared lib init and getty and run many things. 
I used a 1Mb 386 like this for a while to play games and edit documents.
Granted its no good for compiling (hello world took 4  minutes).

It's all a matter of what you use it for. The killer with linux is the 
applications - notably some of the Gnu stuff and X. If someone ported
something like bcc386 from minix I'd expect a 1Mb machine wouldn't be
too bad for compiling either.

Alan