Oh yes, that is really neat, here's how thats made:
Resistor: 10k (connects reset pin to +5V)
Capacitors: Both 22pf (needed for the oscillator)
Oscillator: 16mHz (the silver UFO lookin thing on the right)
Microcontroller: ATMega328 is pin-compatible with ATMega8, so you can swap them right out!
I agree the Arduino is quite remarkable in that you don't need most of the components that come on the standard board - most of it is there to support the USB communications and regulating an external power supply.
You could also get an FTDI Basic and program & run it from USB port.
Connect its leads to +5, Gnd, Rx, Tx
Add a Reset Switch from pin 1 to Gnd, press reset when the IDE says "loading xxx bytes of xxxx" or something like that.
Or, add a 100nF cap between the FTDI DTR and pin 1, let the IDE take care of creating the Reset.
You could definitely swap to the internal oscillator, you just need to change the fuses to do so.
Downside: To change the fuses you need an ISP programmer of some sort (ArduinoISP works fine if you have another arduino setup).
I have to agree, that is a neat variant - it would be very easy to transfer to a perfboard layout, too. I don't have anything else to add others haven't already, though...
Chicken325:
What's that "canyon" in there for, anyway? I wouldn't have thought it mattered.
Likely "less plastic" meaning lower cost, higher profit for the manufacturer. I suppose you could route a few wires underneath a chip or two if you wanted, but I've never seen this done...