Hi,
building the Linux system from scratch is not impossible. I just finishing a project which is almost the same specification. I did it in 3 months with a very low experience in Linux as I started the project.
i could give you the following suggestion:
1. read the book from Karim Yaghmour for the basic Linux system, for the toolchain use crosstool (
Building and Testing gcc/glibc cross toolchains).
2. installtion of JRE is very easy, just download the package from Sun's website and and extract
3. install the X windows system, and the windows manager. i use IceWM since it is realtively lightweight.
hope this helps,
regards,