This is probably going to nerd you guys out pretty good, but I picked up a book on robotics today and subsequently got the idea to build a remote controlled submarine. Not just any remote controlled submarine, but one that has cameras, so you can see what it's doing! and maybe an arm to pick and poke crap. It's definitely still in the design phase seeing as how I'm not quite savvy enough in the programming department to control it. I think I might end up using a motherboard with a flash drive and an ethernet card to interface/control it. That's about as far into the programming stage as I got. I'm working out some of the mechanical aspects of it as well, but those are way more complicated than I feel like explaining.
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Linux is really tough to do anything non-web related with. Damn Small Linux probably won't have a desktop or Xwindows system, and you'll have trouble finding peripherals that work on Linux. But if you can make it all work, it'll certainly be the smallest solution you could come up with.