SliTaz. It's an ultralight distro that still manages to look decent, and packs enough essential features by default to make it useful. I have that, and a handful of Windows portable apps on a 256mb thumb drive, and have room to spare.
Edit:
Link http://slitaz.org/en/about/
Does it work well? Certainly there are many things you can do with it. This device would be great for keeping inventory. With Dos gaming still being a higher priority of course. In respect to Linux..Have you tried to run the Slitaz distro? That one works well on older systems. I think the ISO is only like 44MB.
It's easy to make your own distro if you extend a basic system like Debian (excellent package system). It's even easier to roll your own distro if you use tools like Remastersys (http://www.geekconnection.org/remastersys/ubuntu.html) or SliTaZ (http://slitaz.org/).
Slitaz is my go-to, real lightweight distro. Not sure about its gaming viability. I only use it on an old Atom netbook.
One problem with that old 32bit CPUs is the Spectre and Meltdown vulnerability. You've been warned. Maybe some immutable distro that's based on containers might be better, but good luck finding a 32bit version.
Pretty much any distro should suit you fine (I've run lubuntu on a 32 gig card for months in the past), but SliTaz is an extremely lightweight and snappy distro with a full installation footprint of 80MB while packing a full LXDE desktop, a webkit browser and more. I find it much more usable and competent than competitors like DSL, tinycore and puppy.
I've wondered that myself. I don't follow the project closely. Every time time I think to look into it, I get sidetracked into something else. I figure what I have works, so I haven't worried much about it. For a microsystem like this, having the latest/greatest isn't much of a concern. I guess I should look into it though :o/
Edit:
Looking at their mail list, it looks like it has light development, and their on a bit of shaky ground. Hard to say what'll happen with it. I only scanned the messages, but it looks like they need a leader, and some vision to push things forward.
http://slitaz.org/en/mailing-list.html#archives