As you undoubtedly already know, 2GB is not much to work with these days . . . my cell phone has more storage than that.
On thing you could do is run Damn Small Linux http://www.damnsmalllinux.org/
from a USB stick and use your hard drive purely for files and such. DSL will even run straight from RAM since you have a pretty large 512MB. You could also install DSL on your drive and have about 1 to 1.2 GB free afterward.
Of course, a very basic install of most any distro without KDE or GNOME will probably fit. You could use XFCE or, better yet, blackbox for a window manager.
If you are REALLY frugal with the packages, you can probably make it work with slackware or arch . . . it'd be tough.