Linux distributions are already small; they can easily be smaller than the smallest Win2K installation with equivalent or greater functionality, depending on purpose.

Compare the contents of the six CDs of Red Hat, to the one cd of Windows 2000. The OS itself is equivalent to Windows 2000 Server almost out of the box, and resides on one cd.
The other five are simply EXTRA. Often, those CDs include the source code, which itself can be several times the size of the binaries alone. The source may compress well, but that just adds another step in the installation process.

When one installs an OS, whether it be Linux or Win2K, they usually expect it to be entirely functional after installation (barring some minor tweaking).
I'd hate to have to wait a day while my system compiled itself, unless I planned on doing that (which is why you get the source code on those other 5 CDs!)
On my linux box, MySQL takes over 4 hours to compile (AMD K5-100). I can't imagine how long the kernel would take, not to mention the entire compliment of libraries, binaries, and various other utilities that go towards making a distro fuctional.

Making distros smaller isn't really necessary. Making an install on your machine smaller requires only a bit of planning, and skill, on your part. Or you can pick one of the many pre-planned tiny distros out there. I believe there are a couple floppy-based distros. This is an advantage of <freely-available-source> operating systems.

And yes, as yerricide noted, Redhat is not the only option.

The people who will decide between linux and Win2k will, hopefully, do some research beforehand and realize that in the end, they ARE getting shortchanged by getting only one disc!

Small Distros: