Yes you can. As others have pointed out, it the DE that uses most system resources. For common development task you don't need 3D gimmick. You can install lightweight DE like LXDE or XFCE. I use Xubuntu in my home pc and installed it as a Virtualbox guest in my office pc allocating 1.5GB of RAM. Things have been buttery smooth. For a comparison of system resources used by different DEs see the article http://pclosmag.com/html/Issues/201109/page08.html. The article is a bit old but still relevant.

I haven't done it in a while but I did run virtualBox on a linux host and WinXP guest back on my old EEE PC 1000 - 1GB netbook with 1GB ram and Atom CPU.

I mean we aren't talking about creating a functional desktop here, all they need is a image that boots runs a text editor and has all the ruby packages pre installed - you don't even run heavy weight IDE like eclipse - this should easily be doable with ~512MB ram image.

But I agree and Ubuntu might not be the best choice of distro for this, especially with that unity monster.

I ran Ubuntu 12 or so on a 2GB C2D MacBook with lion and an SSD. Not too bad.

There we go. Somebody commented on my post itself saying I should try Mint!