Interestingly, Win 8 and above have specific CPU requirements over and above the speed:
If you want to run Windows 8 on your PC, here's what it takes:
Processor: 1 gigahertz (GHz) or faster with support for PAE, NX, and SSE2
If your CPU doesn't support some or all of these, then the highest OS you can run will be Win 7 - which is an excellent MS OS, and probably easier to live with on older systems than 8.
You could check in the BIOS if you need to turn any of these on, but it's possible that the erroneous memory report could be linked to a lack of PAE support on the CPU.
Try downloading and running the equivalent Windows 7 upgrade checker and seeing if that gives the same results.
If I were you I would buy a cheap 2nd hand HDD of 80GB or so (SATA or IDE, whatever is necessary) from ebay and try the install on that. You don't actually need the original disk in the PC - although it's helpful to attach it to transfer settings and data. That's exactly what I did, so I could switch between disks until I was satisfied enough to run with Win 7.
SD