As we move from back-to-school shopping shenanigans into holiday shopping shenanigans, a number of retailers (Wal-Mart, BestBuy, CompUSA) are selling dirt-cheap underpowered Windows Vista laptops for $300-$400 from vendors including Toshiba, Acer, and Gateway.
A few articles have been published on "upgrading" these machines from Vista Home Basic, which is more or less unusable on them, to XP Home or Pro. But why stop there? If you want to get down to business on a dirt-cheap laptops, and Linux isn't your thing, take a look at Windows Server.
I've used Windows Server 2003 on extremely old boxes (Pentium 3, 500 MHz, 384MB RAM) for testing and development purposes, and these machines are snappy. Server has a lot less eye candy and overhead than XP (I often catch it idling with only 120 MB of RAM in use), which makes it ideal for these underpowered machines.
How do you do the "upgrade"? Well, the the biggest challenge is the same as with XP: the laptop vendors provide Vista drivers only, and you'll need a Win2000-XP era driver for Server 2003. So before dropping the cash, do some research and make sure you can find XP drivers for the video card (on-board or not), Ethernet, and WiFi devices at the least. Sound card support can be hard to find too.
Once you've got the drivers, it's a straightforward install. Throw in another GB of memory (these laptops are sold with 512MB) for $30 or so, then go into the system control panel, boost the virtual memory setting and tell Windows to prioritize console apps rather than services (Server does the opposite by default, as one would expect). You probably want to uninstall the high-security mode of IE, if you're planning to use IE at all. Do this under Add/Remove Programs, and then Add/Remove Windows Components.
There are a small number of applications that can differentiate the server from the desktop Windows OSes and will complain (Grisoft's free AVG anit-virus product, for example, as well as some Windows Live apps). For the most part, though, all of your applications will run fine.
Now ... where to find a Server 2003 license? (The OS requires activation like XP.) At $999 for "Standard Edition" and $399 for the cheaper "Web Edition," this OS was never meant to be used with a $300 laptop. Although it would be nice if Microsoft offered a single-user non-server price, that's about as likely as Apple selling you MacOS for your Acer laptop. Good bets are companies buying new licenses of Server 2003 R2 or Server 2008 to replace Server 2003. You'd be surprised what unused or retired licenses could be kicking around your own company.
Another approach is to download the Server 2008 Beta and try that. 2008 is based on the same kernel as Vista, and so should use Vista drivers rather than XP drivers. However, I haven't used Server 2008, and I don't have any immediate experience that would inform performance, installation on random hardware, etc.
While this is not a recipe for building a cheap laptop for your less-than-computer-savvy relatives, if you're already a hacker looking for an extra portable machine to do Windows work on, it's almost certainly the most bang-for-the-buck possible.