Windows XP uses hard disk space to emulate RAM and increase the amount of memory available to the operating system and programs. If you see the "not enough virtual memory" error, you need to increase the amount of disk space dedicated to virtual memory. Here's how:

Click Start and then right click on My Computer. Click the Properties command (alternately, you can get there from Start | Control Panel | System).
In the System Properties dialog box, click the Advanced tab.
On the Advanced tab, click the Settings button in the Performance frame.
In the Performance Options dialog box, click the Change button in the Virtual Memory frame.
In the Virtual Memory dialog box, click the drive where your paging file is located. Now double the value in the Maximum size (MB) text box and enter that value. For example, if it says 384, change the value to 768. Put the same value in the Initial size (MB) text box. Click the Set button, then click OK.
Click OK in the Performance Options dialog box and then click OK in the System Properties dialog box. Restart your computer if you are asked to do so.
You can also spread your paging file across more than one disk by entering values on different drives. This will speed up the operation of the paging file.

Taken from WinXPNews