Those first-gen Linux netbooks used a 16-20GB mini PCIe SSD.
The following happened:
- the market shifted from 7-9" to 10.1" screens, meaning bigger chassis with room for cheap, standard 2.5" hard drives
- netbook prices came down substantially from the early days, being squeezed down by basic notebooks and pads
- Microsoft priced Windows 7 Starter low enough that most buyers were no longer interested in Linux. W7, even in its most basic form, requires ~12GB of storage; large enough SSD's are too expensive for the netbook market.

I agree the idea of a cheap, light, passively cooled, sealed casing netbook with no moving parts and quick-booting small SSD was attractive. The market appears to have shifted to pads, however.