I own one of the first OLPCs. The problem isn't Linux. (I hate to think of Win XP running in 256MB system, 1GB storage.) The problem is the whole philosophy of "it's not a computer, it's an education tool." (Or however they put it.)
No. A computer is whatever the user wants it to be. If you try to make that difficult, it'll fail sooner or later. The less money behind it, the sooner.
The educational philosophy they were pushing works for some subjects, some of the time. But they should have made it easy to use the OLPCs any way people wanted much earlier. It was only some time last year that a simple desktop switcher (sugar - gnome) was included with the basic OS. For me, at least, not having an ordinary filesystem available was a showstopper. I'd been dualbooting debian since the beginning, but all the trial and error to accomplish that isn't something a lot of teachers would do. But initially, for the first four years!, there was a lot of resistance to just giving people a familiar interface.
Then there were the hardware limitations. Even for Linux, at least the Fedora they're using, 256MB is barely enough to breathe. The keyboard takes a lot of getting used to. I'm not sure they ever got the expanded touchpad working.
So, like I said, nice idea, but they should have put more effort into improving hardware, providing the software people want, better distribution so they had a larger community of enthusiasts to write code for the project and help on (better organized!) forums, and kept their goofy educational philosophy for the people who wanted it.