Problems with memory

Dear all,

I've started working with R (vs 1041) a few weeks ago, and now I'm
having problems with the amount of memory.
I'm working on the windows-me, my computer has 128 Mb of memory. I'm
using the R under the emacs (ESS-5.1.20) and it is started by the
command:
Rterm --min-vsize=10M --max-vsize=100M --min-nsize=500k --max-nsize=1M

I've been had problems when executing a loop like:
attach("data.Rdata")
for (i in 1:n)
{
         object1<-fun1(data...)
         object2<-fun2(...object1)
         object3<-fun3(...object2)
         object4[,i]<-fun4(...object3)
        rm("object1","object2","object3")
}
After few interactions  it stops with the message:
"Error: cannot allocate vector of size 7890 Kb
In addition: Warning message:
Reached total allocation of 127Mb: see help(memory.size)"

I thought that using "rm" I would avoid problem with memory. Did I miss
some point on using "rm"? Is there any other way to remove objects from
the memory?