I concur with carlywarly's suggestion: if upgrading RAM isn't an option, a lighter window manager (Xfce4 is a great example; it's my personal favorite) will get you a lot farther on 128MB of RAM.
It's not so much the OS that's RAM-hungry, but rather the graphical interface. I ran a couple of versions of Mandrake on a 64MB/533Mhz machine for a year with great success (though someimtes sluggish performance from an earlier version of KDE) and noted that the speed was dramatically improved over Windows 98SE and Me on the same machine (not to mention better security, and reliability, and usability, and customization, and... and... and...
If it means anything, I run Vector Linux 4 on a 32MB RAM/200-something Mhz machine, using Xfce3 as my desktop environment, and I note no ill effects. Xfce4 absolutely screams on the aforementioned 533Mhz/Mdk 9.2 machine (now upgraded to 256MB RAM)-- I'm willing to bet it would serve you well at 128MB RAM.
You can check out Xfce4 at
http://xfce.org. It might be a bit intimidating at first if you're used to Windows, but if you give it a little time you'll fall in love with its speed and flexibility. If you're interested in trying it, Charles Edwards has put together excellent Mandrake 10.0 RPMs of everything you'll need to run it at
http://www.eslrahc.com/10.0/. Just download everything with 'xf' in the filename.
Hope this helps.