I finally got it running on real hardware with internet access (booting the ce_bz kernel from hd, added realtek 1 gbit nic for networking on board with via chipset). Now some things I discovered first - and basically reasons why a full featured Linux distro - which can also run from USB is better:

a) Localization

It was nice to see that it is possible to select german language and keyboard layout. The language is ok, but the german keyboard layout is absolutely crap. It is impossible that the developers ever tried it, because you can not use any webmail provider without using the @ key - and that key (right alt+q) does not work at all. So even german users are forced to use us layout if they want to write emails.

b) Firefox crippled

Well it is no full featured Firefox, but fully crippled. You can only access files from USB and you can not access any config options besides proxy settings. That leads to the point that you can not show Youtube videos fullscreen only in a window. And not even that is really stable with Firefox 2.0.0.3. Java is completely missing.

c) Skype

Full outdated version of Skype 1.3.0.53 without video chat, but thats basically unimportand as the system has no access to webcams anyway.

d) Chat / Pidgin extremely restricted and not working with ICQ

This is also fully outdated and does not feature lots of protocols like newer Pidgin releases do. You can only access MSN and Yahoo, the ICQ network does not work due to the last protocol change and Pidgin is not new enough for that. Usually you would like to use IRC protocol at least too, but thats impossible.

As conclusion I would suggest that the system should be at least updated and improved with preinstalled Java (at least version 1.4) and updated Pidgin. Also a few more network drivers would not hurt too like via-rhine or some others used by Virtualbox - that's really needed to debug. I don't think that you can do much with this system, it is very restricted and can not compete with full featured Linux live systems at all.