Get a sawtooth logic board and a sonnet CPU and pop in at lest 512 or go ahead and pump in 1GB.

For the kernel to panic when the system hasn't been used in a while is kinda weird, might have some software issues or something. Now if you got a kernel panic every time then yes it's due to low memory. You could try and reset the PRAM and see what happens.
To live is to let die