There are two problems which caused the install to run out of memory on my 32Mb machine -
1. The root (shm) filesystem defaults to half available RAM, ie. 16Mb. If you set it to default to 24Mb, or even 20Mb, it would work (after all installer components were unpacked it stood at 19.5Mb).
2. The installer defaults to loading a whole bunch of unnecessary modules. I know this is all about making it work smoothly on loads of different hardware setups, but one solution would be to force the debconf priority right down if it finds that main RAM <48Mb. With careful selection of components, I suspect you could manage the install on a 16Mb machine, let alone a 32Mb one. Nowadays, anyone who's trying to install this on a 32Mb or lower machine probably knows which hardware drivers they need ....
CC
P.S. I would be happy to write a "low memory installation" howto if that would help.