Yes... unfortunately as stated, there isn't much you can do when you have little ram. At the college I attend I recently discovered that in the oldest computer lab they are running some type of Pentium 2 or 3 with 16Mb of ram. They are using Windows 95- extremely sluggish but still usable I guess.
Even if you could install Windows XP with only 32Mb ram I don't think you'd get any reward for it. It's stable code and speedy operation would count for nothing by your system crashing or running sluggishly because of the low RAM. Really the only advantage of installing it is the new start menu and pretty blue colour, but at the expensive of performance. It isn't worth it.
I haven't much experience with Laptops so I'm wondering if this is not a valid idea since no-one else has suggested it, but you should be able to get some second hand ram and install it for a reasonable price. That way you can get Windows XP to run as good as any other machine. Even if you have to go back to Win 98/95 it'll run better than XP on your current setup.
But nevertheless, just for theories sake, I guess you could install it and try for yourself. Sorry, I can't supply the link, when I was installing WinXP for a friend with only 32Mb ram I had to get him to buy himself some more. Fortunately it was only sdram so it was cheap. Good luck...
Just a thought.
Patrick