There are several efforts.  I run Soekris boxes for a couple
firewalls/NAT boxes.  Compact Flash, posible to get down to
8MB if you are hardcore and don't need much, 32MB is easy.
You don't need "rescue" stuff in an embedded type box (pull
the CF, stick it in a real machine, heal it.

Being "safe" by using slow, unreliable floppys or CDs
seems silly and counterproductive for most uses.

CF worked from 8MB up to 256 and 512 (and 1GB if you
want a warm little drive).

Quoting vodka@intoxicate.us (vodka@intoxicate.us):
> Is anyone aware of a project similar to ClosedBSD
> (http://www.closedbsd.org/), that uses NetBSD instead of FreeBSD?  I'm
> looking for a firewall solution where I don't have to use a hard disk. 
> Running it from the CDROM would be preferred, but floppy will do too.  I
> checked out the NetBSD Firewall Project (http://www.dubbele.com/), which
> seems pretty neat, but still requires a hard disk.  Is anyone aware of a
> project, or working on one?