I like how the Linux Mint distribution does it (to a degree). They offer two
flavors. The CD version includes just the critical programs and the DVD
version includes everything else.
I actually think sticking to restricting the distribution to the software
which will fit on a CD is a bad idea. With each new version there is less and
less space available for the applications as each application gains new
features/drivers.
We have literally seen seemingly essential applications being stripped from
distributions and replaced by less functional alternatives. How minimalistic
do you want your system? There are some great and efficient programs that
could be included if size was an issue. For instance GIMP, OpenShot, and
Pidgin aren't included in many newer distributions.
What I'd like to see is a minimal version that lacks Firefox, LibreOffice,
video editing software, and similar although still includes the critical
desktop pieces like Gnome along with a list of programs to be installed
during installation although not included in the initial ISO download. Things
like LibreOffice, Gimp, Pidgin, OpenShot, Firefox/Chromium/Konqueror etc.
This would cut download size while letting people install the more featureful
'full version' application one might actually use.
There are a number of applications which seem to be 'token gestures' that are
included just for marketing purposes in many distributions. I'm thinking
video editing software mainly. Although there are others.