^ personally Id reccoment 512 :P
As far as performance, it will be slow, but usable.
alexsabree - As soon as you install XP, run tweaks to improve performance ( turning off menu efects, services, startup objects, etc.)
on a low end computer (esp with windows) getting it stripped down and maintaining it is key (keep it clean, scanned etc).
Also, later on, MS is releasing XP Fundamentals which is a pre-stripped down version of XP for older systems. I didnt think about that untill now, sorry.