Don't feel bad at all about building your game with soft lightmaps! That's what most of us do. We had a small poll a while ago and every one agreed that the soft lightmaps simply looked the best. All other settings either look worse or make the game unplayable, even on high end machines.
Do not use full shadow lightmaps on your game, it doesm't make it look better at all, most of the times even worse. Do avoid shaders also, they give unpredicted and unwanted results.
As for the textures, that does matter a lot. 512x512 looks much much better then 128x128. Do yourself a small favour. Go to my website and download the demo.if you haven't done so already. Play both levels of the demo, the training and the mission and see how the game runs. It was build with using 512x512 textures and soft lightmapping with static lights only. No shaders, no dynamic lights.
So try building your game using 512x512 texture settings and soft lightmaps. Turn of shaders and dynamic lights. Use static lights only.
Also your machine isn't up to creating games with FPSC at all. You can play games created with FPSC on it, I've tried my game on a P3 1Ghz, 384Mb Ram and 64Mb GeForce2 and it did run reasonable.
To make your own games with FPSC you really do need 512Mb RAM.
