<p>Now I'm sure we're all well aware of the relative merits of Linux vs Windows Desktop. However I've heard much less about the world of embedded development. I'm mainly interested in solutions for industry and am therefore uninterested about the IPhone or Android and more interested in these two OSes.</p>

<p>What are the relative trade-offs between the two platforms in the embedded world? If you were considering building a box for a specific project with custom hardware, a partially customised OS and a custom app then which would you choose and why?</p>

<p>I would assume that Windows CE wins on tools and Linux wins on both cost and possibly performance. However this is just utter speculation. Does anyone have any facts or experience of the two?</p>

I worked for several years at a company that provided both CE and Linux for all of their hardware, so I'm fairly familiar with both sides of this equation.
Tools:
Windows CE tools certainly are better than those provided by Linux, though the linux tools are certainly getting better.
Performance:
Windows CE is real-time.  Linux is not.  The linux kernel is not designed for determinism at all.  There are extensions that you can add to get sort-of real time, but CE beats it.
Cost:
This is an area of great misunderstanding.  My general experience is that CE is lower cost out of the box ($1k for Platform Builder and as low as $3 per device for a shipping runtime.  "What?" you ask?  "Linux is free."  Well, not really so much, especially in the embedded arena.  Yes, there are free distributions like Debian.  But there are plenty of pieces that you might need that aren't in that free category.  UI frameworks like QT, Java runtimes and media codecs just as a start.  Also, most Linux distributions with a commercially-backed support system (e.g. MontaVista) are far from free.
Source Availability:
Linux proponents may like to say that CE is a bad choice due to lack of source code.  All I can say is that in over a decade of working with CE, half of which spent doing custom kernel and driver work for custom boards, I've only ever had need for source that didn't ship with CE (they ship a vast majority of it) once.  I like having source too, but Microsoft provides support, so in the rare case you might think you need that source, you can get them to fix the problem (the one time we needed source, Microsoft provided a fix, and for free - which is their model under CE.
Does this mean that CE wins every time?  No.  I wouldn't suggest that at all.  If you are a Linux shop and you have lots of Linux experience and code assets, you'd be foolish to run out and go CE.  However, if you're coming into it from scratch CE usually has a lower TCO.  Developers with Win32/C# experience are more prevalent and consequently less expensive.  You also get a lot more "in the box" with CE than most other distributions, meaning faster time to market if you don't already have these things done in-house already.