looks like you're doing a good job so far. If you need any help pm me or megalomaniac, we both have experience doing this type of thing.
I actually have almost the same setup as you. 7'' lilliput vga touchscreen, M1000 mobo, 512 ram, 150 opus psu, only I have a 250GB 3.5'' hdd and a 150w
Also I recommend adding a decent sound and a cheap video card to that machine. The onboard sound will suffice, but a nice audigy card will be so much better, and it will enable you to use all kinds of great tuning software that you can download. Also the video card I recommend because the M1000's onboard video can lag if you play really high quality videos. For my youtube and google video rips it's fine, but I tried to play a super high quality dvd rip and it lagged badly.