Windows will set the virtual memory to about 1.5 to 2 times the amount of ram in the system. So if you have 128MB of ram the virtual memory setting at full capacity will be 256MB. So the 350MB of hard drive space isn't enough for this large of a swap file. Plus you don't have room to install most of the huge software titles that's out today. A 20GB drive is only about $60.00-80.00, I'd get a larger drive. Changing your virtual memory settings could help but may also produce negative results. Here are a few things that can help.
Reboot to a DOS prompt by pressing the F8 key just before the cloud screen appears and select the last choice. Normally the file is located in the windows folder but may be located at the root of the drive. Delete the swap file by typing rither of the following commands.
del c:\windows\win386.swp
del c:\win386.swp
Then reboot, Windows will create a new file.
Here is a batch file you can create to automate deletion of junk files. Save the file as "tempdump.bat" from there just type in tempdump and hit enter. Once complete the DOS prompt will close and return back to windows. Anytime you want to run the batch file simple click START|RUN type in "C:\tempdump" without quotes
Run command,type in "CD\" edit hit enter input the following lines.
@echo off
cd\
DELTREE /y c:\windows\history\*.* > NUL
DELTREE /y c:\windows\tempor~1\*.* > NUL
DELTREE /y c:\windows\temp\*.tmp > NUL
DELTREE /y c:\windows\cookies\*.* > NUL
DELTREE /y c:\windows\applic~1\micros~1\office\recent\*.* > NUL
DELTREE /y c:\windows\ShellIconCache
exit