This has been a point of discussion rumbling around the various geek news sources. The latest is a column by John Carroll wondering about this very same idea.
An answer to the $100 PC? (Posted by John Carroll, October 13, 2005, ZDNET)
Obviously one of the problems to building a $100 computer is the cost of the parts. How much do you strip it down in order to make the cost incredibly low? But my mind right now is more interesting in "why" would one want to do this?