Overview
Linux for embedded applications has had a long time to develop. Articles and discussions that go back to the late 90's exist in which the performance of Linux for these devices has been debated and worked on. Other platforms for embedded applications existed that were, amazingly, slimmer than Linux. As time crept on the processing power and resources of handheld and embedded devices grew immensely. With the advances in available processing power, Linux became a real alternative for embedded applications.
In recent years Linux for devices other than PDAs and phones have started to emerge with it being a favorite in devices like routers, Blu-Ray players, DVRs, etc. The development of Linux for PDAs and phones has really bloomed and has had a long history because of the ability of these devices to display graphical environments and have more processing power.
In the early days of Linux distributions for handheld devices there was Microwindows (http://www.microwindows.org/), Trolltech's Qt Palmtop Environment (http://sourceforge.net/projects/qpe/), and PocketLinux (Official website is gone but a good article can be found at http://alllinuxdevices.com/news_story.php3?ltsn=2000-08-25-004-03-PS-LF-HH).
In more recent years other distributions such as Familiar (http://familiar.handhelds.org/) and OpenZaurus (http://www.openzaurus.org/wordpress/) have stormed onto the scene. The most active distribution at this time is the Angstrom distribution (http://www.angstrom-distribution.org/).
Distributions to watch for in the future include both OpenMoko (http://www.openmoko.com/), and Google's Android (http://code.google.com/android/).