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512MB for a server is pretty pityfull, you may want to consider an upgrade.
Thanks for the reply. Actually I think so I made it look confusing. The configuration that I gave was a desktop which has windows 2000 server installed but rest of the systems have Win XP installed with same hardware configuration.
ePO server configuration is as per the requirement.
VSE 8.5 with up to date patches and hotfixes (to patch 3 level) uses about 45MB on windows xp sp2.
This will spike when its updateing etc