Win2k will run very comforatbly in 256mb of ram and it will address up to a gig (or more?) so keep your current memory and upgrade the OS.
Changing to less, faster memory isn't going to make much of a difference in overall performance, about 1 or 2% if that. Aside from benchmarks, most people won't really notice differences in performance less than about 50%. Really... small differences are a waste of money.
The real bang for the buck will come from getting rid of Microsoft's biggest mistake: Windows Millenium Edition, WinME. Win2k is faster and more stable right out of the box. With some tweaking and adjustment it can run rings around any 9X software and it will be more stable in the bargain.
In your case, my friend, I think an OS upgrade will be your best bet.