If you will ONLY be running Squid on the machine, I would recommend at LEAST the following:
Pentium MMX @ 166MHz
4 MB RAM
10/100 Base-T Ethernet card
I mean, if the machine will not be a workstation, just an HTTP proxy, then you could probably get away with a 486, but those machines have outdated BIOSes to wrestle with if you're using a modern HDD.
I have a 486DX 33MHz with 16 MB RAM running Slackware-current and it acts on my LAN as the WAN router, a local caching name server, and a light-duty local web server. It could probably run squid at the same time and be just fine. (It used to be my SQL server, but I moved that duty to my wife's workstation (don't tell her) to reduce latency due to the small amount of RAM on the 486.)
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The room where this machine will live can get a bit warm, so need a machine that runs on the cool side and will not overheat.
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One nice thing about legacy machines is that, as long as you keep the chassis well ventilated, they do not tend toward heat issues. A good reason to go with a Pentium MMX 166 is that it is essentially an emasculated version of the 200MHz chip, and therefore even less likely to have any heat problems.
