So I have successfully installed Jon's image to the internal HD (on the Media partition) and have been using the system for the past few days.
Dang, it really requires a lot of patience. I've disabled Spotlight (by adding Media and OSBoot to Privacy...is that correct?) and turned off the animations.
It's still really slow at times. If I download a torrent, it takes about 2 minutes for Transmission to open and then start d/l'ing the file.
Yeah, I know -- 256 Megs of RAM. What can I expect? If only System Profiler's finding of TWO memory slots (one free) were actually true. Even 256 Megs more of RAM would definitely speed this baby up.
At this point, I'm quite happy that I got everything working (thanks to Ash especially), but I think I'm going to reformat it and either return it or use it for what it was actually intended for (with XBMC and Boxee too, of course!).