I would encourage you to max out the RAM in it. It probably has at least two RAM slots, and if the 32 MB was what came with it, each slot can probably handle at least 64 MB RAM, bringing you to at least 128 MB. RAM chips, especially ones as low as 64 MB RAM, are dirt cheap these days, and can be purchases from many online vendors. Once you get to 128 MB RAM, you can actually install some full featured distros and use a window manager like gnome. XFCE is a lighter desktop and would probably run pretty snappy with those specs. Do a websearch for you model computer and find out what the max installable RAM is and do it. It will make a world of difference.
I just entered your model number in a google search. Depending upon whether you have the REV A or B model, you can expand to either 128 or 256 MB RAM. You can probably find better prices than the page I include. With 256 MB RAM, you could pretty much install any distro and run gnome or KDE with little problem. Hope this helps.
http://www.smmdirect.com/memory_conf...fm?incat=52081
Gentoo (or any source-based distro) is probably a bad idea with your slow processor, taking days to do a stage 1 installation. You can do something like a stage 3 installation, but still updating by compiling is really going to be a pain, I would think. And if your not compiling for optimization, a good bit of the allure of Gentoo is lost.
Which distro should you use? It depends on how much experience you have. If this is going to be your first installation, and you get it up to 256 MB RAM, I would suggest either PCLinuxOS or SimplyMepis as your first distro. If you are stuck with 128 MB, or have some experience doing installations, Ubuntu might be a good choice (just remember to also install automatix with that to get all the nice stuff proprietary formats working right away). I don't know if 128 MB is enough for Ubuntu, but you can easily check. Slightly more challenging is doing a net installation of Debian, or an installation of knoppix (text-based disk partitioning). I found that a net installation of OpenSuse didn't recognize most of my hardware, whereas both Ubuntu and Debian did.
I have no experience with Freespire, but I have heard that it is also a very good first distro. If you go that route, use synaptic to do your package management from the get-go. If you start using click-n-run, you will probably have to keep using it, and eventually pay, because it doesn't mesh well with mixing the free synaptic approach.