From my own experience, WinXP will run fine with 256MB if you are only checking email, surfing the net or using MS Office etc. This isn't too bad for less demanding games either. Many of the newer games, and flight sims, are much happier with 512MB and sometimes more. One terrain add-on for X-Plane recomended 768MB for best performance and/or high resolutions. For some of the new games that are supposed to come out sometime this year, more than 512MB would probably help.
Just wait until the 64-bit version of WinXP comes out. Then we can listen to people brag about how they can use more than 8GB of memory...
goates