BOFH of MSBetas.net has been able to compress Windows 95 into 4.47 megabytes, making it the world's first sub-5mb bootable, registry editable, command-promptable, usable version of Windows 95. He has written a small description about what he did, and also included screenshots (with his digital camera).
This seems to have a lot of interesting applications, for example I could have a fully bootable OS with my frequently used programs preinstalled on a small USB pendrive.
Source:
http://www.msbetas.net/V6/?postid=52 (currently slashdotted)
Mirror:
http://www.mskf.org/mirrors/slimline/slimline.htm