A couple of corrections/clafications.
A full install of Vector Linux 5.9 Standard will take up about 3.3GB of space. You certainly don't need to install everything for it to run well. The OS and desktop environments offered will run just fine in 128MB of RAM. What will be slow are some of the applications (Seamonkey, Firefox, Thunderbird, Scribus, some games, WiFi Radar, etc...) Using lighterweight applications like Abiword or Gnumeric instead of OpenOffice or Opera instead of FIrefox/Seamonkey/Thunderbird will work out best for you. You can also save RAM by using JWM instead of Xfce which will allow more for applications.
A full install of Vector Linux 5.9 Light will take up about 1.8GB of space. Any of the desktop environments or window managers on the iso will run just fine in 128MB of RAM. The same comments about applications apply. The only downside to Light is that it's still in beta and there are still some bugs to be worked out.
Either way your system has more than enough horsepower to run VL. I agree with those who say more RAM is your next upgrade. More hard disk space is always nice but it won't improve performance.