yes certainly. you can install a useful working linux system on a gig if you are a bit picky abuot what you install, 2 gigs... certainly worth doing. and the speed is good enough to use Xwindows with a lightweight manager like WindowMaker or BlackBox.
you'll be fine with most distros, but like i said, you will probably want to be as picky as you can about what you install. But it's easy to remove anythign afterwards anyway, esp if you go with rpm distros, eg. redhat or mandrake.