I'm running 640MB. Extreme overkill, but what the heck. The system never even touches the swap file, and I'm letting Windows manage it w/o any special settings. My system DOES use more than 256 without a problem. Microsoft say that 512MB is the most that the 95/98 kernel can effectivally manage. Who cares, reboot once in awhile.
Also, there are numerous threads throughout the AnandTech forums on this.