The GP32 successor has a Linux operating system. It can run emulators, play DivX, and even it can play Quake.
It will be very easily to develop on GP2X and the SDK is totally free. It's powered by two 200Mhz CPU's with 64MB of RAM. And it's also cheaper than other handhelds around here...
More info here: http://www.gbax.com/indexgp2x.html