My experience has been using Linux with X Windows on a desktop system with 4 meg of ram and a 200 meg harddrive.
Some Links to X Windows resources:
Mono X server required for tinyXlib5.
More information about smallX (formerly Tiny X) Windows in only 4 megs of ram;
Tiny X - libs and fonts - Xtinylib.tar.gz;
Tiny X - bin files - Xtinybin.tar.gz;
Mail us at: E-mail:smalllinux at superant dot com