I have a 500mhz with 512mb ram and a 40GB hard drive that is running SuSE 10.0 with KDE ok. It isn't fast, but is ok for card games, internet access, and OpenOffice. I wouldn't want to do anything graphic intensive, or that requires a lot of number crunching, but for simple stuff, it works ok.
There are quite a few distros that are much more light weight, like Puppy linux, or DSL. You might try one of those. And look into upgrading the memory. Linux is a good way to get a couple of extra years out of old hardware.