As always, it depends on how fast you want it and what you want to do w/ it. I continue to stand behind Mepis (SimplyMepis) for a general desktop distro that you can try out as a LiveCD first. Under the hood it is Debian, so adding software and updating will be fast and easy. It will work fine in 128MB of Ram. If you want it to be a server too, you can apt-get what you specifically need or go ProMepis when it comes out. I use Libranet on my server which is also Debian based.
Are you really looking for something compiled -O3 for your CPU? If you really want Gentoo, use the installer that has some stuff pre-compiled for your arch. I think it is a stage 2 or 3 install. Good luck with that, not for me. I do wish that Debian had an i586 and/or i686 repository. I wish I knew how much improvement one could expect from this.
You might want to try Arch Linux. http://distrowatch.com/table.php?distribution=arch Arch Linux is an i686-optimized Linux distribution. It is lightweight and contains the latest stable versions of software. I haven't used it, but it seems to combine some pluses that Slackware and Gentoo users tout with an update system similar to Debian. YMMV
Whatever desktop distro you choose, you will see a large speed improvement by using a less resource hungry window manager (i.e. not Gnome or KDE). Try IceWM, Fluxbox, etc.
Brian Kelsay