128mb of ram is plenty for basic web, mail, etc. My first VPS was 32mb and over the years linode has upgraded me so I now have 1gb ram for my $20/mo. Transfer has gone from 200mb to 2tb, and cpu speed has gone up.
But I still create LOTS of 32mb and 64mb servers in virtualbox to set up lab exercises for my students. They work fine.
I'm a very happy linode.com
customer, I'm sure you will be too!