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I heard Ubuntu desktop can run with an absolute minimum of 64mb.
What do you think? It's doesn't matter if it doesn't work, this is only for testing.[/QUOTE]
With the server install, or the netboot iso? Yes. 64mb is completely sufficient. However you will be command line only in that respect. While my linux experience with macs is a bit limited. I can honestly say with the hardware you have, LXDE or XFCE will be your best shot if you want a windows manager that will seem at least some what familiar.
If you want things to run with any sort of speed with 256mbs to play with? Shoot for Fluxbox, FVWM, WindowMaker, JWM, IceWindows or even Enlightnement.
Keep in mind the first four are not for the faint of heart, as there is a lot of text coding needed from the command line to make them work the way you want, but once you do? They are a DREAM. Fast, clean, efficent and just plain nice.

IceWindows is really akin to Windows98-ish, with a bit more user-friendliness built in. While Enlightenment is just fun.
http://fluxbox.org/
http://www.fvwm.org/
http://windowmaker.org/
http://joewing.net/programs/jwm/
http://www.enlightenment.org/
All are available in the repo's for easy download and initial configuration. If you have problems from there, feel free to PM or drop me an email.
http://xwinman.org/ <- Is also a wonderful place to poke around and look at all the project that are up and running to some extent or another.
Happy hunting, I have loved my linux boxes for almost as long as I have loved my macs!
~Drake