OS X will run in less than 128 MB - virtual memory will take care of you down to about 64 MB. However, if you can, it's a good idea to upgrade to <i>at least</i> 128. The more RAM you have, to more RAM OS X will use, and the faster everything will go. Going from 128 to 256 to 384, I'm still seeing fairly dramatic increases in overall speed, especially when taking advantage of OS X's nice multitasking.
I'm guessing this is only important when accessing memory is the bottleneck - if you have a slower computer you're going to be worrying about other things. Still, with RAM cheap again, it might be a good idea anyway.