You might be able to find a super lightweight desktop distro out there (I think Damn Small Linux can run on those specs?) or you could repurpose it as a basic server of some sort like you mentioned. Unless you wanted to invest in some cheap old ram to throw in there and maybe make it a bit faster, then I think those would be your best options.
Kinda, yeah! These kinda remind me of some of the icon packs I used on my jailbroken iPod Touch!