I'm a computer scientist with little knowledge about electronics.
The obvious starting point to lose lots of bulk is to get rid of the Arduino, and replace it by just the ATmega and only the components you really need on board (so no USB interface, maybe even no regulator, etc).
Do the same with all your other externals.
Start drawing schematics with all the separate components present.When you have all the separate components, build a prototype on protoboard (use DIP versions of the various ICs, you can later replace them by much much smaller SOP packages if you go for a real PCB).With the schematics finished and prototype working you can go ahead and design yourself a PCB and have it manufactured.That's going to be a problem... You'll have lots of learning to do!
Something like this?http://start.shrimping.it/kit/shrimp.html
What do you recommend for the schematics? Is there a Linux alternative?