Why I mentioned it as full remastering is, DSL now offers a convenient way to create your own DSL flavor using DSL extensions. But I prefer full remastering since it gives me more control.

Its mainly through trail and error that I found the steps to significantly change DSL to suit my needs. Of course few links helped me. But nearly at the end of my quest I came across a wonderful book by the creators of DSL, and I think that is the definitive guide you should read if you are interested in remastering.

Negus Live Linux Series The Official Damn Small Linux® Book: The Tiny Adaptable Linux® That Runs on Anything
by Robert Shingledecker; John Andrews; Christopher Negus

Installation on kernel 2.6.24 is messy , the reason is VMWare is not up to speed to generate vmmon modules for the latest kernel.

I encountered the following error, since I tried to use a latest kernel.
Version mismatch with vmmon module: expecting 167.0, got 161.0.
You have an incorrect version of the 'vmmon' kernel module.
Try reinstalling VMware Workstation.

but before this error you are most likely to get lot of compilation errors which you can get around by running any-any-patch.

so here is the recommended method to get VMWare installed in Debian.

KVM needs support from processor (and maybe from BIOS,chipset,ect), which is exactly why it will be faster. In Intel this is called "VT or Vanderpool Technology".
thus, first run
cat /proc/cpuinfo | grep flag
then if either vmx or svm is in the output you are lucky and can install KVM.
Fortunately KVM packages are already in Debian Etch repositories and KVM support is inbuilt in the latest kernels. Thus unless you explicitly did something , KVM modules should already be installed. you just need to install KVM user space programs. hence you can omit kvm-source in the following apt-get