I'm currently doing full-time development work on a netbook. It's not ideal but it is manageable. It's an MSI Wind running Ubuntu 10.10. Admittedly it's hooked up to an external monitor, keyboard, and mouse. And I upgraded it to 2GB of RAM and a 300GB hard drive. At any given time I'll have gvim, chrome, apache, mysql, and memcache running.

I'd like to get a beefier laptop but this will do for the time being. Funds are tight.

EDIT: If you decide to get a netbook, try out a few and see what keyboard layout you like. The hardware inside will be pretty similar, but the keyboards are all crummy in slightly different ways.