Goto the apple menu, control panels, memory, then click the "use defaults" button, this will set your virtual memory to 257 mb, which is what it should be, don't turn virtual memory off, the OS needs it to work efficently, on OSX, you CAN'T turn it off. It is currently set way to high, basically you are using 850mb of your HD as RAM, which will make it slow!

Does it have a firewire port? If not then i wouldn't install OSX on it, these were the G3 processor based machines, 266mhz if you have a CD tray, or 350 mhz if the CD is slot loading, either way, they can run OS X, but your better off using a later "ice white" imac which had a 600mhz processor and was shipped with OS X from Apple.

OS 10.3 or above is the only versons of OS X i'd use, the previous versions were crap!

Also, no point in running OS X if you still use the OS9 apps in classic mode, it's like running 2 OS's at the same time, it runs OS9 in emulation mode, so it can run the OS9 app, might as well keep OS9 if your going to do that!

Memory wise, they have 2 slots, as you have 256mb RAM, then you either have 1x 256mb dimm, or 2x 128mb dimms, 256mb is enough to run OS X, but as with every computer, you can never have enough RAM.

Rather than upgrading an old machine (they were made last century btw!!) why not save some cash and get a new machine, look at this for example:
(just had a quick look on www.dell.co.uk)

Dimension 1100, 512mb RAM, 80GB HD, dvd/CD-RW combo drive, 15" flat screen monitor, £399 inc vat + delivery