Okay, a few notes:

First off - we're running Mac OS X. Though Malware isn't an impossibility, it is still legitimate to say it is highly unlikely that that is the problem.

Secondly, I've had this problem myself, and it started with one particular Limewire update, though the specific one escapes me at the time. 300MB files may not be irregular, but I'm sure we know if we're downloading a 4MB music file or a 300MB porn mpeg. I've found it so frustrating to work and work at clearing hard drive space, getting myself up to 700MB or so (I have a 10GB drive), rebooting so everything was clean, and then getting maybe 2-3 music files before I start getting disk space notices from the OS. A few 4MB files are suddenly eating up 700MB?

Yes, Java has issues, and virtual memory can be a pain. That's why I upped my memory to about 640MB (running 10.3.9). The issues didn't change from when I had 384MB. Considering the pains I have taken, I sincerely doubt virtual memory is (exclusively) the issue.

One thing I have noticed is that the problem seems to increase by leaps and bounds for each new search I do.
<explanation>
I'm not an attorney, but I get the impression if I own the cassette version of an album, I should be within rights to obtain that album, or it's songs, in MP3 format to use on my iPod. Having only a 15GB iPod, I shuffle songs through it occasionally (and having a 10GB hard drive, I do NOT sync), so months after deleting something from the iPod, I may have a desire to listen to it again, and go searching for it.
</explanation>
So anyway, I find I have a lot less of a problem if I get on, do ONE search, download some songs, and be done. If I do several searches (such as trying to nail down a single track), the issue intensifies. If I've done 5-7 searches, I'm lucky to get 3-4 files before I have to quit (and restart, because just quitting doesn't return all of the used memory).

I have since progressed some - I'm on a G4 iBook with a much larger hard drive, Mac OS 10.4 and it's newer Java, and an 80GB iPod, so though I will probably be using Limewire to reobtain my tapes and some CDs that are in storage, I haven't gotten to the point of using Limewire under my new configuration. Perhaps this is fixed under 10.4, or the newer Java, or the newer Limewire. I don't know, but at the very least, I can commiserate with you. I have shared your pain.

I do have to ask, though, at this point in the OS's evolution, just how much drive space would you (LotR) suggest leaving open for virtual memory? I now have a 55GB hard drive and about 2GB free. I've always heard the rule was 10%?

Stevie - if you really want to clear your hard drive, I would suggest a tool like OnyX that can help you find, or automatically clear, many if not all of your logs, caches, backups, archives, and lots of other miscellanious data that's great if a) your computer does something truly unexpected and b) you know what it all means. I've opened over 500MB just having it trash logs.

One last note - disk defragmentation is also not truly an option. I think there are many 2-3 disk degragmentation tools out there for Mac OS X? At this point, I've been told the disks' drivers handle defragmentation and an external utility is unnecessary (and somewhat dangerous with the constant disk use from the operation of the OS).