You should use an OS made for thin-clients. I made one from Debian to install using USB, but you could definitely try a network install, I'm sure. The total installed size with Firefox, X, Fluxbox is 297MB. Adding xterm would be very easy. If you need more info, let me know
I'd rather see a version of utorrent for Linux, than have more unnecessary features..
You should use an OS made for thin-clients. I made one from Debian to install using USB, but you could definitely try a network install, I'm sure. The total installed size with Firefox, X, Fluxbox is 297MB. Adding xterm would be very easy. If you need more info, let me know