Yes, there should be a market for this. A somewhat different approach to the same problem has existed for a couple of years http://www.ltsp.org/ . I have once installed it on Ubuntu 10.04 and it went quite smoothly. It's in use in some schools in this country (typically they use last generation PCs as terminals).
The promised $50 price point per seat neglects the display and the keyboard. The Amazon offer linked from the article incl. display and keyboard is already at $290. So the difference to a small netbook is not that big anymore, although administration is easier and ergonomics for the user is better.
Unfortunately in schools there is heavy competition by M$ offering their stuff for dumping prices for obvious reasons.