If the root filesystem is too small maybe the best way to approach packaging is to mount an SD card (or a partition on one) on /opt and then install packages there like you would with OpenWrt if you have limited flash storage.

Other than that, sounds pretty dire if most apps are web apps. Isn't that similar to WebOS? I had a palm pre and used it for about a year, but it was before I became a Linux user so I wasn't really thinking about what was under the hood. Gave up on that because of the battery life in the end, quite liked the handset itself.