No I'm not a moron. I was watching XP's task manager performance monitor, and there was no paging file usage beyond the norm (it is always using the same amount of page file space as the committed memory usage). Turning on Prime95 maxed out the committed memory to all the physical space that wasn't in use.
Right now, my desktop system is using 145MB with Internet Explorer using the most, at 18MB, and Explorer.exe at 16MB. The rest is services or other minor background apps. Of course I do have a GB total in this system for those rare occasions that I want to play a game. Even loading several apps up, I don't really go over the 256MB mark, and letting the system page some of the inactive crap to disk wouldn't hurt.
My company laptop that I just copied my personal laptop's image to is actually using a total of 73MB right now, with XP Pro, out of 256MB (nothing in particular running except F-Prot and some minor other things.) Even Outlook 2000 and Word 2000 both loaded at once only used up an extra 15MB at most.
256MB is enough to get by with, and isn't going to cause any problems, as long as you've optimized it, if you're just using it for basic tasks. Certainly running the default software load of an OEM machine is going to cause the system to lag no matter what, and XP's extra services are probably going to suck down several dozen MB of memory that could be put to better use. Getting 512MB is just a good hedging of your bets, but isn't an absolute necessity in most cases. If it's free, don't say no, but if not, look at what other components you might be able to upgrade for the money.
Incidentally, what's with people recommending Apple systems to someone looking for a PC laptop? Aside from the horrid price difference, how many people are going to just suddenly learn MacOS and all its applications?