XP will run decent with 256 MB of RAM.
Usually the most you'd ever need in XP was 2 GB.
Windows 7, needs 512 just to run (and not too well, either. Though, much better than Vista.)
1 GB is the minimum I would recommend to use with 7, so yeah, even with that, you're only getting about 300 MB for applications, so you're running low.
simply check: boot up your system, press crtl+alt+esc and you'll see that at least 50% (more likely about 80%) of your RAM is used without you even doing anything!
the times of 1GB-RAM-computers are gone. depending on the RAM you are using you can get another 2GB of RAM for about $40-50 I guess (havn't checked in a while, so maybe they've become even cheaper). sorry but I guess there is no other way if you wanna use an up-to-date OS.