Are you sure it's kdeinit? I experience no problem with kde 3.2.2 (PII 300MHz 384MB RAM)
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top - 21:30:58 up 1:44, 1 user, load average: 0.59, 0.55, 0.38
Tasks: 59 total, 2 running, 57 sleeping, 0 stopped, 0 zombie
Cpu(s): 4.9% us, 1.0% sy, 0.0% ni, 93.7% id, 0.0% wa, 0.3% hi, 0.0% si
Mem: 386200k total, 330456k used, 55744k free, 47652k buffers
Swap: 257000k total, 0k used, 257000k free, 161872k cached
PID USER PR NI VIRT RES SHR S %CPU %MEM TIME+ COMMAND
6093 cfgi 16 0 43280 31m 28m S 0.0 8.4 2:04.74 kdeinit
6145 cfgi 15 0 43104 30m 34m S 0.0 8.0 0:46.69 kdeinit
6114 cfgi 15 0 34628 24m 28m S 0.0 6.5 0:17.69 kdeinit
5584 root 15 0 59664 23m 42m S 1.0 6.3 3:22.02 X
6055 cfgi 15 0 30624 19m 27m S 0.0 5.1 0:09.53 kdeinit
6057 cfgi 15 0 26632 16m 23m S 0.0 4.5 0:17.76 kdeinit
6014 cfgi 16 0 26288 15m 23m S 0.0 4.2 0:05.35 kdeinit
6071 cfgi 15 0 25500 15m 22m S 0.0 4.1 0:02.90 knotes
6047 cfgi 15 0 28640 15m 26m S 0.0 4.0 0:02.31 kdeinit
6068 cfgi 16 0 24984 14m 22m S 0.0 3.9 0:05.20 korgac
6247 cfgi 15 0 25168 14m 22m S 0.7 3.8 0:02.35 kdeinit
6242 cfgi 16 0 22788 14m 20m S 3.3 3.7 0:13.29 ksysguard
6139 cfgi 15 0 23652 13m 21m S 0.0 3.7 0:39.25 kdeinit
6051 cfgi 16 0 23596 13m 21m S 0.0 3.6 0:15.83 kdeinit
6070 cfgi 15 0 22724 13m 20m S 0.3 3.6 0:25.97 kppp
6061 cfgi 15 0 22928 12m 20m S 0.0 3.4 0:03.36 kdeinit
6067 cfgi 15 0 22228 12m 19m S 0.0 3.4 0:01.93 kwalletmanager
6074 cfgi 15 0 24160 12m 22m S 0.0 3.3 0:01.82 kalarmd
6054 cfgi 16 0 22300 11m 20m S 0.0 3.1 0:02.14 kdeinit
6050 cfgi 15 0 22080 11m 20m S 0.0 3.1 0:00.91 kdeinit
6011 cfgi 16 0 22220 10m 20m S 0.0 2.8 0:00.66 kdeinit
6193 cfgi 15 0 21988 10m 20m S 0.0 2.7 0:00.12 kdeinit
6240 cfgi 16 0 21988 10m 20m S 0.0 2.7 0:00.09 kdeinit[/code:1]
There are lots of kdeinit entries but that happens because most things were started from KDE and lots of memory is shared. If you look through ksysguard you can see the actual processes that were started with kdeinit (choose tree).
So may 128Mb is not enough for the applications you are running and all you see eating memory is kdeinit because everything was lauched from kde.