Funding is a problem that plagues many small Linux projects which are not catering to the mass First World markets. This is a universal struggle, for any software project that doesn't have a proverbial pot of gold payoff. Greed is a much stronger motivator than generosity -- this isn't meant to be a knock on humanity, I believe it is part of human instinct. We are wired for self-preservation.
As far as funding goes, the DSL project couldn't even afford its own hosting on the amount pulled in the 'damn small donation fund' -- that's despite its enormously popularity. I've really had to think out of the box to keep this thing going and in the black.
Here is the challenge:
keep a project free
keep it active
keep it in the black (or even make money?)
That seems to be a Universal struggle for Open Source projects. I can tell you that hanging out on the corner with a soup bowl isn't going to fund a project, it will just going to be a source of frustration.
Here is an evolving formula:
--Engage your user-base and foster a community
(this is the most important step)
--Ask for donations
(do not expect much)
--Sell related tangibles if you can
(we sell CDs, bootable pen drives, and mini-itx related items)
--Put ads on the project's website
(it will do much better than your donation fund, this is leveraging self-interest, not asking people to give.)
--Always give credit where it is due
--Don't be afraid to lean on others
(we get a lot of bandwidth help from Ibiblio and other mirrors)
Yes, doing all this is a lot of work, but I do not see another way to keep a small project thriving.