I would also advise to install Ubuntu. Default install of Xandros on eee is rather strangely configured - new versions of software do not replace old versions, but are installed on the side, which means that updates take much more space than they should.

I had (still have, but am not using it much lately) eee701 and after installing Ubuntu it was very good machine (I also upgraded memory to 2GB and was able to run Eclipse 3.5 on it - but limited screen size made it rather unpleasent to use).