4 GB is what you want for regular XP, although as mentioned there are "simplifed" versions of XP out there that will go as low as 1 GB or less. I've seen one called TinyXP that runs great on an old t20? laptop.

That said - it's not really kosher to get these versions - pretty sure they are illegal. There are tools to create your own version of "lite" xp or Vista. One that I remember is call Nlite. A little google work will get you more information. Basically, they allow you to remove standard components of windows that you don't use, like internet explorer (if you want) etc.