Arcade Linux is a Linux distro for the specific purpose of running MAME et al. on an arcade machine. The hole that the distro would fill is the 'MAME cabinet distro', it sets itself up using software like AdvanceMAME to work on a REAL arcade monitor, for the ultra authentic arcade experience. Running MAME through a PC SVGA monitor looks a lot different to the Real Thing(TM). The hardware side of this (interfacing with your PC VGA card) is very inexpensive and simple to set up. Check out www.ultimarc.com and look at the 'J-PAC' for what I use. The only software that exists currently (AFAIK) is 'ArcadeOS', which isn't actually an OS as such, just a frontend that runs from DOS and displays in low-res that an arcade monitor can handle. I've begun from the ground up following linuxfromscratch. Once that's completed, AdvanceMAME, AdvanceMENU etc. need adding. then the whole thing needs rolling into a redistributable package, that doesn't violate any licenses, and isn't a chore to install.
Installing/configuring necessary packages from a scratchbuilt linux install. Then streamlining and repackaging for redistribution.
Sourceforge Project Page