Windows 7 Starter Edition won't actually be sold here in the western world, but is instead destined to go to emerging markets and 3rd world countries. Apart from the 3 application limit, Starter has another limitation in that you can't change the wallpaper (I'm actually not making this stuff up); it is not yet known whether this limitation will be removed as well. Paul Thurrot claims all this on his blog, and since he's pretty accurate when it comes to Windows, and it's not April 1, we can safely assume it's true.
On a related note, TechARP has revealed the maximum specifications for the lower-end Windows 7 versions. These versions, which include Windows 7 Starter, Starter For Small Notebook PCs, and Windows 7 Home Basic For Small Notebook PCs (China only), have restrictions on what machines they may run. Enjoy the following table to find out the details.
Luckily, every version of Windows 7 will run happily on a netbook (my Aspire One runs Windows 7 Ultimate), so you can choose whichever version you want. There is still no word from Microsoft as to what version will actually be the preferred option for netbooks in the western world. If Microsoft is smart, they just give discounts for the Home Premium version to netbook makers. Together with Professional, Home Premium are the only two versions shipping in the western world.