more memory is good, plus maybe create a new user account and make it so nothing starts up at login, no dock animation, and all that good stuff, and try it there to see if that helps.
I have been using FCP 4 daily since it was released on a G4 2x1.25 with 2Gigs of Ram. NO problems. Then TODAY it dropped frames on an output to Digibeta and then gave me the "out of memory" error.
I don't know why and it is rather frustrating. I will post if I figure out the exact cause.