Re: Please have mercy...
These machines were quite successful - to the extent that Microsoft decided that they were a threat to them. I may have the precise facts wrong here - let someone who knows better correct me - but my understanding was that they enabled a very basic version of Windows 7 to be installed on similar machines at a very low price. This meant that people were able to get Windows boxes at a similar price level - normally with larger, non-SSD boxes.
Yeah, more-or-less right.
The original netbooks had barely enough storage to run the Linux distro with which they were supplied, and it was hard to squeeze Windows on at all, but various people did manage to trim XP to fit, usually without buying a licence, and Microsoft noticed. Later netbooks had more flash storage -- or even a hard drive -- and Microsoft started to offer very low cost OEM licences for XP for these machines.
Some netbooks of the XP vintage were nice little machines, and although it was hard to find one for sale with anything other than Windows the "Microsoft Tax" on them was very small, and they made very nice portable and cost-effective Linux laptops for those that wanted them. I still have Ubuntu (14.04 -- the latest LTS) on my Acer AO751h.
Microsoft later released the "Starter" edition of Windows 7 for netbooks. This was basically a customized Windows 7 Home that was limited to handling a maximum of 2GB of RAM and a 1024x600 pixel display. This is what really killed the netbook -- too little RAM and a crappy display resolution.
I doubt that Microsoft imposed the limits specifically to kill the netbook, I suspect they did it so that people who wanted a "normal" home PC or laptop would have to pay more for at least Win7 Home ... but the effect was to ensure that all netbook hardware was limited to the Win7 Starter hardware spec. -- it was that or suffer a ~£70 (at retail) price hike.
The manufacturers turned their attention to Ultrabooks -- MUCH higher spec hardware, and price tag in which the cost of the Windows licence could more easily be lost.
Like it or not, Linux has too small a share of the market for it to have been worth the manufacturers' while to make higher-spec netbooks just for the Linux market.