tiny RTLinux requirement
You can run linux on an ARM7 CPU with uclinux but is not recommended any more.
Linux requires at least 2MB RAM only for the kernel, so 4MB min is a more realistic. You need also at least 2MB of Flash memory for filesystem.
With the current prices of ARM9 CPUs (like AT91SAM9260) is not worth it to use ARM7. Note also, that almost all ARM7s do not support DRAM memory and you have to pay expensive SRAM memory.
I think that ARM9 is the only realistic solution for a low cost Linux system.
**broken link removed**
for an example of a very low cost linux system