Mounting Arduino on custom PCB?

Yes, you can buy pre-bootloaded uCs:

Bare minimum components are shown below.

208x114 /2 = 108x57
Squeeze a little down to 100 x 57, can do that with standard eagle free hobbyist download (100 x 80)
(8mm = 0.3")

Boards are then 10 for $24.90 plus ~$5 shipping from iteadstudio.com

May 3 10-conductor ribbon cables to connect the 2 halves?