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Originally Posted by olpc website
We are using components from Red Hat's Fedora Core 6 version of the Linux operating system; we are tracking the main kernel fairly closely.
We will support five programming environments on the laptop: (1) Python, from which we have built our user interface and our activity model; (2) Javascript for browser-based scripting; (3) Csound, a programmable music and audio environment; (4) Squeak, a version of Smalltalk embedded into a media-rich authoring environment; and (5) Logo. We will also provide some support for Java and Flash.
Applications will include a web browser built on Xulrunner, the run-time environment used by the Firefox browser; a simple document viewer based upon Evince; the AbiWord wordprocessor, an RSS reader, an email client, chat client, VOIP client; a journal; a multimedia authoring and playback environment; a music composition toolkit, graphics toolkits, games, a shell, and a debugger.
Libraries and plugins used by OLPC include Xul, GTK+, Matchbox, Sugar, Pango, ATK, Cairo, X Window System, Avahi, and gstreamer.
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This sounds like quite a capable device to me. Certainly they are running software much more advanced than Windows 95 or 98, as mentioned by a previous commentor. I can imagine these being configured as little cheap scouting computers. There are rumors of these things getting >5 hours battery life. They also include wifi and their own camera.
They could also be configured as programming computers, if somebody is willing to program on a 7.5" screen (although, it does have good resolution).
And the best thing is that the software is all completely open. The limit is literally your imagination.