Or you can go even further, use something like buildroot (http://buildroot.net/ http://buildroot.net/) to build your kernel and rootfs, and even tweak the kerne

Or you can go even further, use something like buildroot (http://buildroot.net/ http://buildroot.net/) to build your kernel and rootfs, and even tweak the kernel configuration if you like. I recently did an RPi project where the kernel and rootfs together were about 5 MB compressed.