1. I'm presented with a 'boot:' prompt. Are there commands I could issue to get the machine to boot from the CD? Or is Live CD a lost-cause for this machine?
Most Live CD's running the X server require 256MB to boot properly - but try uelsk8s suggestion, it might work, it might not.
2. The corrupted graphics worries me. Could this mean this machine wouldn't support VL graphics?
No VL will work, try last poster's suggestion.
3. I could double the RAM (to 256) Mb for very little cost. If I did this, do you think VL would run acceptably well on this machine for Internet browsing?
Yes, very well.
4. The disk is an IDE-connected drive. Would I anticipate that VL would support this?