First off, 128 MB should be enough, granted, more is always better, but gnome/kde aren't quite as bad as many people make them out to be.
Now, you claim you're running a Pentium 166 with pc100 ram? First off, no pentium ran at a 100MHz bus so the ram isn't at full speed (Pentiums used a 66MHz bus). Second Pentiums were built for edo ram which had latency's at best around 60ns, by contrast sdram comes in around 7ns. So the processor wasn't built with such low latency's in mind. The fact the motherboard allows sdram at all tells me it is probably a super7 board, in which case you should be able to plop a K6-2/3 in there with no problems. If you can indeed do this I highly recommend it, adding more ram will hardly do anything, a nice 450MHz K6-3 will be very noticeable.