search for smalest linux systemp[solved with losetup]

[GNUtoo]

me(newbee i just help as much as i can reguarding my skills lol...) and others people are porting gentoo to an arm that runs qtopia so...
i can mount+chroot on an external ext3 drive(usb)
i can't mount a loop with qtopia mount utility
i can mount a loop with gentoo-arm:

-i can mount external hdd(usb) but not a loop with qtopia mount utility
-the internal hdd is vfat
-there is a loop mounted at startup: /dev/loop/0 on /progfs type ext3 (rw,noatime)
-i can mount loop with gentoo mount uttility
-/bin /dev /home /lib /mnt /opt /proc ... are read only and can't be changed(only var,tmp,root,etc can(ln -s into /dev/shm) it realy can't for now(some people are working on it) because it's as knoppix cloop (but here we don't have the tool to create it)

so:
-does someone knows a small arm linux distrib that fitit into18MB(/drv/shm)
when it is uncompressed(no loop:files,executable)
or:
how to incrase /dev/shm that is in ram (swapon works on a file)
or:
how to link a file with /dev/loop/1
(i have no acess to the boot process)

[GNUtoo]

i made a dirty smallest system(not suitable for newbees so i need a cleen systemin order to make simple a script to install it into /dev/shm (my way is too long and too much complicated))
so i get very poor performance in comparaison with the direct mount(usb)+chroot
is there any performnce issue to doubble-chroot:
qtopia=>chroot1(smalest system)=>real gentoo system(2005.1!!!)

or is it the loop file???

hdparm told me that the internal HDD and the external HDD speed are quite equal
(500-1000k/s)