You can also use Ubuntu, but don't use the standard install. Use server install instead and install Fluxbox or Blackbox afterwards (their footprint is so much smaller then KDE's of Gnome).
Ubuntu 'Supa Small Install' HOWTO for a step-by-step guide. I run it on my Dell Latitude Cpt (cel 400, 256 mb) and it does the trick. Mind you, the Black- and Fluxbox don't offer the same eye-candy as Gnome/KDE do and may require some more tinkering, but they sure as hell take a lot less RAM
k:
Gentoo is also a good option but takes a little longer to set up due to the compiling. If you have a 'bigger' Linux system allready you can compile on that one to speed things up a lot.