The low screen resolution of netbooks is their weak spot. Technically there's no reason I can think of why they couldn't ship with higher-res screens. I believe most of the problem is that Microsoft refuses to allow the XP "netbook" license to ship with any device having a higher-resolution screen. This means that any manufacturer shipping such, would be shipping a Linux-only device (or at least, would have been until Windows 7 launched). Vista on an Atom CPU is a bad joke. On the limps/walks/runs scale, it's somewhere less than crawl. Ooze, maybe.
Anyway, Asus are soon to ship a Netbook with a 2-core "desktop" Atom CPU, NVidia graphics, and a screen with a decent resolution. Provided the weight hasn't bloated too much (to support a less frugal CPU), that'll be close to perfection. The mass market will probably take to it running (or more likely walking) Windows 7.
In the meantime I find standard Gnome quite usable on a 1024x600 screen, though the apps need a bit more scrolling than would be ideal. Wonder why MS hasn't filched the idea of virtual desktops yet?