How many programs are running in the background? A base XP Home install still uses almost 200MB by itself. AV, firewall and other programs could easily suck up much of the remaining 56MB. As soon as you start any application, you're swapping to the hard drive which will be noticably slower.
Upgrade the RAM to 512MB minimum. Run chkdsk on the hard drive then defrag it as well, remove any unnecessary programs from the startup group and the Run line in the registry.
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