TheGrebs.com:HowTos:Custom Linode Distribution

Install normally locally onto hardware or in a VM.
Boot with a Live CD such as gparted, finnix, knopix, etc and shrink the root partition to the minimum size.
Create empty swap and root images on the Linode site.
Create a Finnix configuration profile.
Boot the Finnix profile, connect to the console via LISH, set a root password and start up sshd.
Boot Finnix on source system, and dd to Finnix on your Linode via SSH. The destination on your Linode is /dev/xvdb (/dev/ubdb for UML Linodes).
Wait a (possibly) long while.
Once complete mount the root image from LISH.
Edit the fstab, root and swap should be /dev/xvda and /dev/xvdb (/dev/ubda and /dev/ubdb for UML).
- If not using upstartd:
  edit /etc/inittab comment out all gettys but one. Leave one getty on /dev/tty1 (/dev/tty0 for UML).
- If using upstartd:
  In /etc/event.d remove all tty files except tty1. (If you are on UML rename tty1 to tty0 and change every occurrence of tty1 to tty0 inside the file.)
Check that /mnt/xvdb/dev (/mnt/udbb/dev for UML) looks complete, if not chroot to the mountpoint and MAKEDEV it. Syntax for MAKEDEV may vary slightly by distro.

If necessary, manually create xvd[a-h] device node entries.

mknod xvda b 202 0
mknod xvdb b 202 16
mknod xvdc b 202 32
mknod xvdd b 202 48
mknod xvde b 202 64
mknod xvdf b 202 80
mknod xvdg b 202 96
mknod xvdh b 202 112

If your distro is using udev (unfortunately most these days are), cd to /mnt/xvdb/etc/udev/rules.d and open the file that creates the persistent network rules, usually 75-persistent-net-generator.rules. Modify this file so that it does not create persistent rules for eth*. In this case we simply removed eth* from the beginning of the kernel white-list.
Remove any rules that were auto generated already. In this case /mnt/xvdb/etc/udev/rules.d/70-persistent-net.rules.
Create a profile for booting your custom distro.
Boot and enjoy \o/.