First, thanks to Snoober for the links via facebook, haha. He posted links for some very interesting things. I encourage everyone to check them out. http://www.jolicloud.com http://www.susestudio.com
I read about those at Ars Technica a while back. Really neat stuff. SUSE Studio looks pretty cool for creating your own distro or an appliance. For setting up an "appliance", I like Turnkey Linux (based on Ubuntu). It's great for quickly setting up a virtual machine for testing.
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