There's no such thing as "using too much virtual memory". If it's using a lot of VM, and you disable its ability to use that much, you'll end up with your applications crashing or not being able to load due to lack of memory space. Even Win9x's terrible memory management won't use ALL your free space unless you have a serious lack of freespace, or are loading something that's taking a HUGE amount of memory so it has to be swapped to the hard drive. The thrashing of the drive comes from the fact that it HAS to use virtual memory, not due to how much it's using. Adding memory if possible would reduce thrashing, changing the amount of virtual memory available probably isn't going to reduce thrashing but will reduce your ability to run multiple programs.
You should definitely have at least 64MB, probably 128MB would be a good minimum. I assume you're not really running much in the way of heavy applications on that system. There really shouldn't be any reason to set it to anything but to allow Windows to manage it.