Mandrake with Gnome would prolly work OK. KDE would run but it would be using swap a lot which will slow it down a good bit.
Would make a good file server though. It's a thought. Don't need a GUI for a server.
Make swap about 200 to 300MBs at least but no more than 600MBs. Others have their ways of figuring swap but I try to compute how much total memory is needed and use swap to make up the difference.
Hope that helps.