Initially I started with 4GB of RAM, and upgraded to 8GB (Had Vista 64-bit). It didn't do enough to cure the lag in cities either, so I installed Win7 RC 64-bit and kept that partition barebones (OS, Antivirus, WoW & AddOns). Doing so helped close the gap as well, but still not enough to be smooth everywhere.

Regarding the space constraints, I'm doing fine on a relatively small corner-type desk: