You'll see tremendous performance increases if you're actually running out of memory and the OS is having to page data to the hard drive. 512MB is a good point for WinXP and average usage, but it is entirely possible to fill up the 512MB if you're running XP with all its GUI bits and services turned on, and a couple of MS Office apps open, a few web pages, some background apps.
If you do any gaming, depending on what resolutions you're running and what sort of settings you use, 512MB is very likely to not be enough to prevent pagefile usage.
With tweaking, 512MB can be more than enough. My normal usage only runs in the 200 to 400MB range, but I've got a full gig just to make sure I don't have any significant swapfile usage.
You can see just how much memory is being used, roughly, by looking at the Task Manager. Subtract the Total physical memory from the Available.