I would have to say i am totally in love with that idea. I got a Compaq internet appliace a few months ago so i could hack around with it with the same intent, i got linux to run on it, and it works, but wasnt the right deal for in the car.
What i did come across that i am currently in the process of building up is a Gateway Connected Touchpad, which is just another internet appliance but this one boots directly from a compact flash card as it comes stock. So i spent 40$ and got a ibm microdrive with 340MB capacity which i am going to load Win98 lite on. Then for the real storage, i got a 120gb WD usb hardrive. For sound quality i am considering a sound blaster Extigy, or possibly a sb MP3+ usb card. The nice thing about the extigy is slightly better quality, the remote, and full surround sound support on the outputs.
The nice thing about the gateway is first and foremost that is has a touchscreen which means i have no need for a keyboard or mouse (downside is its a 10 inch screen). Other nice features are that it has an sodimm slot so i can put a 256mb laptop stick of ram in the thing. Another nice feature is that it has a mini-pci slot on the mobo, so that allows me to add either ethernet or wireless ethernet. And then of course the thing also has usb ports for connectivity.
I am still debating over which OS i really want to run, i have found some nice software for linux (like free gps mapping, not navigation though), but at the same time i can do anything on windows, and am still a linux novice.
you can find more info about your internet appliance at www.linux-hacker.org