check out Xubuntu.

http://www.xubuntu.org/

From their site:
You need 192 MB RAM to run the Live CD or 128 MB RAM to install. The
Alternate Install CD only requires you to have 64 MB RAM at install
time. To install Xubuntu, you need 1.5 GB of free space on your hard
disk. Once installed, Xubuntu can run with starting from 192 (or even
just 128) MB RAM, but it is strongly recommended to have at least 256 MB
RAM.

I am currently 9since the day before yesterday) using LXDE desktop. It is
quite comfortable and lightning fast.
Another thing that I experimented with but then abandoned was a combination of
Fluxbox or Openbox and then launching either nautilus or thunar or from the
command line. Sometimes I used pcmanfm. I got back to Gnome+Compiz-fusion but
from now on I will keep using LXDE for most of the time. I like it very much.
To me Gnome seemed to be a little slow even at 1512 MB of RAM an 2.66 GHz
processor.
LXDE is faster than freshly installed Windows XP.

I will experiment with these lightweight distros also:
http://wiki.lxde.org/en/Ubuntu

There are some instructions here but somehow i mistook them. It took a while
until I managed to install LXDE:
www.ubuntugeek.com/...op-environment-for-ubuntu.ht\
ml

There are several "lightweight" and fully supported desktops that you can
use, which are faster than the standard Gnome. XFCE comes to mind and you
can get Ubuntu with it right on the Ubuntu website
www.ubuntu.com/products/whatisubuntu/xubuntu .