this question has been asked thousands of times.
everyone will recoemnd their own favorate.
i woudl say that your computer is ample to run teh newest version of just about any distro but not KDE or Gnome (the 2 populiar desktop enviroments...)
try
http://distrowatch.com/
to give you ideas..
you shoudl be ok witth a minimal graphical system running XFCE or fluxbox.