I've got XP Pro running on 384 MB DDR, 590MB VM on each HDD.  Runs like a dream until FRED2_OPEN crashes for any reason, when my CPU usage hits the ceiling and my PF usage jumps from 60MB to over 1000MB.
My only question for Delta is: have you backed up critical files?  If so, you could try my typical solution: format your OS drive and reinstall the OS.  It's tedious and nasty, but it kills any software bugs.  (Not too subtle, but I can't be bothered with subtle when it comes to computers)
Oh, on the issue of XP, how the bloody hell do you turn CD-ROM autorun / auto insert off on XP Pro?  I've been trying for three months now, and "Windows Help" is a contradiction in terms.