I usually assign 1.5 GB to the VHD in the VM. The rest is left to run the emulator program and Windows. That has been sufficient for all the Linux distros I've tried, both using VM and VPC.
Of the various linux distros I've tried, my latest favorites are Mint and Kubuntu. If you run Mint, don't clk on the welcome screen unless planning to reboot afterwards. I'd suggest going to it's Administrative area and right clk on it's "Welcome Screen" link and uninstall it. It's buggy as can be. Mint 14 currently comes with both Firefox 16 and Thunderbird installed.
Kubuntu I've found more to my liking for Windows flavor, especially if you right clk on it's Start menu and choose to changee it to a more windows like appearance. Even after a standard installation, it works to boot various differing computers, just like the "Live CD or DVD" version will. Kubuntu doesn't come with Firefox nor Thunderbird installed, but using "apt-get" command in the terminal or the Muon Package Manager makes it easy enough to install.
Mint strips out a lot after installation making it more computer specific which means if you install to a USB flash drive as I do, it might not boot any computer but the one you installed it on. If installing to an internal hard drive however, this won't matter much to you.
Between the two, I prefer Kubuntu as a desktop install and Mint installed in a "Live USB" mode to a USB thumbdrive I can carry on my keychain. Mint has a good install program in it to accomplish creating a bootable "Live USB" onto a FAT32 formatted thumbdrive. What I do is then open it in GParted, shrink the first partition, create a second partition and save anything done in Mint to that second partition. Since windows file explorer doesn't see the second partition, it provides a bit of security for files placed by Mint into the second partition. Windows can write to the first partition, so leave enough space there and it can also be used for that purpose too.