Having insufficient RAM will result in excessive hard disk operation, using it as temporary RAM, and can slow down the system to a crawl. It is therefore better to drop down one level in processor speed and buy more RAM if cost is a limiting factor. This is even more important if you are planning to use multiple layers in Photoshop. Each layer can use typically 24 to 118 Mb per layer.
When running Photoshop with Windows 98 I would recommend 64 Mb of RAM as an absolute minimum, but you can expect frequent hard disk usage. You can double that for XP. I've found that 256 Mb is best for everything, except 48 bit scanning or large numbers of layers in Photoshop.
Unlike most computer peripherals RAM varies in price quite dramatically.Mid 2001 it was as low as £18 for a 256 Mb DIMM SDRAM, and over £55 recently. Watch prices carefully and take the opportunity to buy plenty when the price is low.
A new faster type of RAM, DDR memory is now available for modern motherboards. Currently this is DDR333 (otherwise called PC2700). Later in the year a hike in speed means we shall be seeing DDR433 and next year DDR533. The number after the DDR is the bus speed produced from the North bridge in the chipset on the motherboard. Ensure you get the correct type of Double Data Rate RAM (DDR) for the motherboard you are using, these memory chips will not fit into a SDRAM slot on a motherboard.
I recently (June 2002) purchased 3x256 Mb of DDR333 memory for £180.