Isn't VMware Player running under/on/over your XP installation? If free memory is the problem, I'm not seeing how running a VM will help, i.e. the virtualized system will be starting out with less physical RAM available (minus the amount that the 'Real' XP is using). Haven't used VMWare since ver. 1, but that's the way that VirtualPC and VirtualBox work.

XPLite might be something helpful. I haven't tried it and don't know how much tinkering it may entail but they claim: "The latest developments in XPLite now see clean installations of Windows XP in under 350MB " http://www.litepc.com/xplite.html

This is probably only help for a dual boot install though. There are also other micro or tiny XP's available but they're not legal. A dual boot really may be the best solution. As Kawecki said, even an old 20GB drive might be usable with a minimal XP install, since you can probably use your existing runtime(s) on the main drive.

"Democracy is a pathetic belief in the collective wisdom of individual ignorance." - H. L. Mencken