I have a old system with 128mb ram, 866MHz intel pentium3 processor and 80 GB hard disk. I am currently running Ubuntu 5.10 in this system. Which newer version of ubuntu will be supported for this configuration? I am thinking of upgrading with newer version of ubuntu.

I have a similar system which I use for experiments. The only thing I would suggest is adding a bit more RAM. I think most modern distros will run on that machine, but they could be quite slow.

The real answer is to try it.

You will need to use the alternate install CD. The live CD requires at least 256 mb RAM, although at least 384 seems to be the practical minimum from what I have read. I would recommend Xubuntu, since it is a bit lighter on resources that K / Ubuntu. Adding more RAM would be a cost effective upgrade for that machine if you plan on using it for a while. It would greatly improve performance.

See this for Ubuntu system requirements:
https://help.ubuntu.com/community/In...emRequirements
https://help.ubuntu.com/community/In...wMemorySystems

thanks for the reply.. my system also doesnt have a separate graphics card.. will that be a problem even if i upgrade the ram? Can i install new versions like ubuntu 8.10 without graphics card and by upgrading ram alone? and what about things like compiz fusion? will they work without graphics card? and how much ram will be needed for running newer versions like 8.10?

You must have a graphics chip on the motherboard if you don't have a separate graphics card. Run:
to list your video card. As long as your video chip is supported (which it likely is) then it should not be a problem.
If you can upgrade the RAM, then 1GB RAM is the "sweet spot" in my opinion. 1GB RAM will give the most performance for your money. If you can't get 1GB then get 512MB.
I would not try to run compiz on an old machine like yours. I don't run any desktop effects. I always prefer fast and light performance over fancy eye candy.