you know what, i was having this same problem on a bunch of new computers i was building. 80G hdds and 512M ram, and it reports out of memory. what a pile. I don't know what the problem is.

I was getting the error after running winstone. It runs a batch of tests, and then tries to run defrag before it reboots and restarts the tests. Perhaps a program was loaded into a certain area of memory that defrag likes to use, and didn't unload itself properly.

that's the only solution i can think of.

have you tried running defrag after a fresh reboot? that works for me. -tk