I’ve been experimenting with some Mini-ITX systems.
This is a full PC running Linux (or FreeBSD if you prefer), with stereo audio, 10/100 ethernet, 4 USB ports, 2 firewire ports, 2 UltraDMA IDE 66/100/133 interfaces, and it even has a PC-Card slot, and a Compact-flash slot. It has TV-out and integrated MPEG capabiltites, but this isn’t something I’m using. There is a hard drive, DVD drive, and even a PCI card in that little box. It is a tight fit, believe me. Best of all, it runs stock modern Linux distribtions. The pictured one is running Suse 9.0 installed right off the DVD. It doesn’t need any special tweaks or custom Linux distributions.
This is the EPIA M10000-II motherboard. It is not fanless, but it has more horsepower and features than the fanless units. It’s still quieter and uses less power than a full-size PC. Eventually one of these will go in my ‘network equipment’ closet (cupboard) in a headless server role.
UPDATE: Wiki page on Mini-ITX and Linux/FreeBSD: http://www.toyz.org/cgi-bin/wiki.cgi/Mini-ITX