Quote - 1.25GB of RAM

I think your PC hardware is fine. Working with XP is also using less RAM resources than Win 7, so this should be fine too.

BUT even with 32 bit you should use at least 3 GB RAM if you work with a 3D software. Is with your hardware no problem to add RAM. (If you stick with XP32 bit you don't need more than 3GB).

Because the OS XP is using between 300-600 MB of your RAM if it does "nothing." 1.25 GB is simply not enough, I think you will always have memory issues just if you load more than two Gen4 figures. And as Kalypso suggested use a lower bucket size.