I'm not a real linux maven, but have installed pclos of varous flavors (.93, 2007, etc.) on perhaps a dozen machines. Now I'm trying to salvage an older HP pavilion 531w for a disadvantaged family but cannot get any version to install: I elected to finally use 2010 lxde rather than kde because of limited memory 256k. (I have tried with both the 2010 kde and the 2010 minime but have gotten the same results).
Did you mean to say 256 Meg instead of k? (I'm pretty sure you did.

)
HP's
specifications page for this model list it as a Celeron 1.3 GHz CPU that uses the Intel 810e chipset, and PC100 SDRAM. It looks like the maximum RAM load for this board is 512 Meg, so I would try LXDE or XFCE respins of 2010 and see if you make any headway. The LXDE-mini, especially, would be a good starting point.
The first thing I would do, though, would be to try and locate a 256 meg stick of PC100 somewhere (you'll have trouble finding that new, but reputable dealers for used parts are out there) and install it - get that RAM up to 512 Meg and performance should be much more tolerable.
These nice folks might be able to help you there. (But the 256's they have look like ECC, and might not be compatible with your hardware... Usually HP will put int one stick and leave the second slot empty, but look and see what you already have before you order, wherever you go to get RAM.
The video for this thing is integrated into the chipset, so it should use the intel 810 or later driver (and that means it's using some of the main RAM for video, but probably only about 8 - 32 meg).
The real stumbling block seems to be USB suppport? I'd be willing to bet that takes care of itself with a lighter distro and more RAM (but I've been wrong before). You're sure the USB ports in question are not intermittent/unreliable? (You might try some of the other ports just to eliminate this possibility).
I seem to be rambling all over the place today - I'm home with a cold and it's making me feel a bit goofier than usual, so my apologies if I'm a bit incoherent.
Here's hoping you get this bird flyin' again.
Later On,
D