I think your main problem is your system in not ready for Windows 7 or even Vista. You need at least 2gb of ram, probably a larger hdd, a faster processor, ect. to really take advantage of it.
Because of the way Vista and 7 address the memory, you will double your Video memory, but because of this you are leaving your system short of needed memory for everything else. I have 7 on a system with 3gb of system Ram, and if I'm doing anything too intense, like multitasking while gaming, it will run the available memory down well below 1gb. Based on this, 2gb would be the minimum, and at least 3gb would be recommended.