What's there to freak out? It's nothing higher than Windows XP that is run by many people with config like yours, maybe you too.
And the problem only seems is with RAM. You can then install XFCE (procedure is shown here
www.ubuntuguide.org).
Your computer will run very smooth.
I myself have run Ubuntu 5.10 under similar config, infact my processor is only 2 GHz.
Adding 512MB module or RAM did help a lot. But, unless you want to do some work that will take up lot of RAM you won't need any more RAM. In fact using XFCE, it will run a lot faster.