For fun, I'd go for linux on a pendrive. I run a gentoo from mine, which I update every so often, in case my computer goes down. For ease of use slax has a funky package for roll your own, although I've never used it.
Although in the current climate, and with the price of hardrives. I would suggest swapping out the 40GB hard-drive for the best-price-per-GB hard drive, and just buy an external adapter. The just partition however you like. Seriously its a better option, newer hardrives are faster!! even if you bought your laptop only weeks ago.
ie remove 40GB from your machine but new big disk in machine!