I have Debian Etch with XFCE running on a Pentium 133MMX System with 32MB of RAM.. not a speed demon by any means, but you can work on it without too much pain. Use the
Debian XFCE Iso 1 to install on hardware like that..
The Debian installer even went into some low end install mode automatically when it saw the specs of the system.
DSL would be a good choice as well.