I'm playing KotOR as well and I have a P4 1.7 Ghz, 256 MB RAM, Geforce 3 ti 200 64 MB system and run XP Pro and it purrs like a kitten, so you don't necessarily need 512 MB RAM, althought some extra RAM couldn't hurt.
Have you installed the latest patch for the game? (v 1.3 if I remembered correctly) KotOR had quite some performance issues with the retail version and with the newest patch it should be a lot better.. like I said, I don't have any problems and I run the game at the highest settings (except for Anisotropic Filtering and Anti-Aliasing, which I have both set on 2x).
Furthermore, you have the newest drivers for your videocard installed? If not, go download them over at
Nvidia. And if you don't have it already, please download the latest DirectX version too, which is
DirectX 9.0c. And finally you could decide to download the program
NVHardpage, which will let you easily tweak your Nvidia videocard in order to have the best settings for quality and performance.