This is how to create your own bare-bones Linux distribution from scratch:

http://gok.customer.netspace.net.au/.../buildMin.html

There are also things like BYOLinux and Linux from Scratch that guide you, too. But, don't think for a second that building your own distro is not a big undertaking. You will have to make all of the init scripts, all of the packages, everything that the system needs to be installed, bootable, and functional. I usually recommend folks just stick with a distro they like, and customize it to their needs. There are ways with many distros to install additional packages at install time, or you can hack out the installer scripts to do it yourself.

knoppix is very good for that. Also there is many ubuntu based break offs, such as nubuntu.

Knoppix allows you to cut down its "fat" easily

I HAVE MADE IT!

Me and some schoolfriends got together and i now my own system. Our goal is to make it newb friendly so it only has, for example 1 of everything whereas usually there are many programs bundled with disstros that are very similar and quite unnccary.

We are now working on an HDD installer (have a lived made)
However, the downside is that as of yet, all packages must be configured from source and no nice GUI tools.

I have been using mainly LFS kit packages and some extrass but is it possible to get the source code for e.g YaST and modify it?

Another option is rPath. (www.rpath.com). They provide an online service which lets you piece together your own distribution pretty easily. rPath is a Fedora dervative.

I've used it to create a hardened appliance OS for my employer.

rpath doesn't make sense though. at least not to me.

Doesnt make sense to me either. What does it do and how do you use it?

so, what's your distro called, is it something cool like proliant linux? you sould call it Microlinux or Pear Linux

Lol no "proliant linux" would imply it would run on a compaq prolinat server which is kinda hard to configure and hates linux.

We have now made the system into a livecd using SquashFS and there is a simple scrpit to partition and extract it all. However everything is still alpha.

where can i get that script? i'm also trying to get my own distro