It has nothing to do with your filesystem. It is your RAM. Recommended RAM for KDE and GNOME is 256 MB in a operating system installed on your hard disk.
A live cd works from temporary memory so the contents of live cd are stored into your memory too. So with a RAM of 128 MB you will never be able to use KDE and GNOME based live cd.
Here's some info on live cd's
http://en.wikipedia.org/wiki/Live_cd
Try using a live cd like
Puppy LInux for a usable performance. It won't give you a fast running system with such a less RAM but will sure be more usable.
If you don't believe me delete your NTFS drive and then run the cd too. I can bet you will have no performance gain with those specifications. A live cd does not make any use of hard disk unless you make it use the hard drive.