A comment made by MSI’s Director of U.S. Sales Andy Tung in an interview with LaptopMag has raised the question if Linux is a failure on netbooks. He said that MSI Wind customers are 4x more likely to return a Wind netbook with Linux than with Windows XP installed.
Asus pioneered the netbook and the first ones were actually running Linux. Microsoft got there foot in with Windows XP at the last moment. If you look at the top selling netbooks on Amazon than you see the first 5 spots taken by Windows XP netbooks.

Still, I do not think Linux failed on netbooks. I was really impressed using Linux on the Asus Eee 8G when i got it and I am still using it. Netbooks are giving Linux a chance it has been waiting for so long to make some leadway into the desktop enviroment.
The Windows desktop user community is much larger than the Linux one and it takes a lot to have someone switch to another operating system.
Theoretically Linux installed netbooks are supposed to be cheaper, but in reality the price differences are marginal or not there at all as the retailers put out their sales offers.
On top of that Asus puts better hardware (larger SSD) into Linux netbooks evening out the price difference the Windows XP license implies.
In my opinion if there would be clear $100 price difference between a Windows XP and a Linux netbooks more consumers would buy the Linux netbook.
Of course the installed Linux distribution should be well designed and easy to use. Asus did a great job, but as you can read in this Slashdot discussion, not all netbook vendors do a similar good job.
I hope for Linux that netbook vendors do not mess this up and hand it all over to Microsoft again.