Well, I've finished a basic system, with my own custom kernel and everything. It's based on 2.4.17-rc1 (currently the latest and greatest) and it boots in ~9 seconds after POST. I will eventually document into further detail how I did it. At the moment there is no GUI, but I did tweak a few things, like customize the login, and I added console mouse support.

There's an interesting concept of building a 'distro' or at least a Linux based system of your own on a few websites out there. The first one to mention is http://www.linuxfromscratch.org. A pretty complete step-by-step on how to create a fully-working system of your own, using an existing installation. Since it is so complete, it takes quite a while to build the entire system.
Another project which aims to do essentially the same thing is http://byolinux.org - 'Build Your Own Linux'. A little less descriptive, but it is easier to get a semi-working system up quickly. By design, this project gets you up and running quickly, by booting up a skeleton system of SysVinit and bash, and copying a kernel to /boot. All that happens when you boot up is: you enter your root password, and then are presented with a bash prompt. Then we just 'reboot -f' and then continue working.
Right now I'm in the process of combining ideas from both projects to build my own DIY system. I will get around to documenting it once I have a successful system, and I'm able to duplicate it again. Stay Tuned to this journal...