Basically the way windows vista allocates memory is by sharing a decent sum of your physical ram w/ your video card... i have a GeForce 8600 GT 256mb ddr3, it shows in properties as 1gb, 256vram / 768 shared... Basically, it learns to use what you give it... you might be susceptible to occasional slow downs where it might take a milisecond for the window to drag or something like that...but it should work. However, don't bother using Dreamscene until you can get more memory, it'll eat up your ram like you won't believe...
i currently have 2gb pc2-5300, typically i have about 40%-50% physical memory in use by windows and misc. background apps... i've only seen it go as high as maybe 70%... get another gig and you should be pleasently surprised... it's all about finding the bottleneck, and w/ vista, you want to eliminate them for the best experience possible.