My take on this is a very practical one in the first place: What is the minimum necessary to get things working?
I think as a "Live USB" current Knoppix CD installed on a stick is about as close as we get right now.
It has a minimalistic approach (e.g. LXDE), still you can do most of what you want right out of the box (e.g. Java installed).
I would like to see arguments for stripping it still further down. I don't see what big advantages we get.

In ordinary user space, premises are changing quite rapidly, some points:
  • * Live CDs never were a great idea for actually running programs, too slow, too static.
    * The practical minimum for a software base nowadays is about 2GB installed, and growing. So current CD can be considered minimal.
    * USB3 will, in practice, solve the remaining problems with USB access speed. SSD USB3 disks will be fast enough.
    * 16 or 32 GB sticks will be enough for programs and personal user data for quite some time.
    * "Installs" in the Knoppix form of copying images to disk and loop-mounting them, is extremely useful and will only work better and better.
    * Remastering may actually become more usual, to cater for customizing and upgrading. User interests are diverse, and diverging, "install everything" is not a viable option.
    * Using services in an intelligent way, for instance a LAMP stack, may really help ordinary users.
    * We should NOT distinguish between "ordinary" and "expert" users until we really have to. "Experts" are getting increasingsly fed up with system maintenance and installs.
    * Configuration tweaks on standard software versions are essential, special versions must be avoided as far as possible.
    * With vmware workstation running under Knoppix on a memory stick, running Windows is within Linux USB-land, even without Wine, so no need for further fuss about that.
    * There may be a convergence going on, with different Debian-based Linuxes on mobile devices, like the Nokia N900. Utilizing the potentials in this may be essential.
    * Getting Wine to run important user software like Photoshop and video editing programs (especially when Linux versions are not easily available) is gaining in importance.


I think Klaus has moved in exactly the right direction with Knoppix, so we can safely build on that as a standard basis.
From there, I think that a minimum-maintenance "expert" version could be the way to go. Think, for instance, of enabling an interested user to re-create Quantian with minimum work.
Look at the reasons why most remastering versions are not updated.

I would like to add that making ISO images will still be a good idea for quite some time - they just have to be considered and used as starting point for tailoring.