I personally don't recommend to install Win7 with less than 512MB ram. There is a simple reason for that. 256MB goes for kernel space memory & 256MB for user mode apps ( assuming 512MB of ram ) so nearly every app u start or execute gets paged on disk so performance greatly decreases ( expect ur hdd is faster than ur ram )
I tried it in vmware, and it installs and runs on 386Mb, although on a real laptop with 386Mb it doesn't install. So if vmware indeed only gives 386Mb to the guest it's possible do do it. But then the question raises: why does it install without complaining? Does vmware ignore my 386 limit and gives 512?