768 MB ram is ok. I have twice that amount but it was on special at the time I bought my G4. By the looks of your ram type, are you running a G3 or G4 or earlier possibly? What's the speed of your computer?
You have 58% idle ram in that image which is quite ok. Perhaps close/force quit the classic environment whilst you're using LW. I've also noticed odd things about starting LW whilst having classic mode running. Yet I'm running Tiger OSX.