Hi Mehall,
I am really curious to know the results of your experiment. I definitely remember the generating locales bug from the tests I ran with 8.04. Installing CLI Ubuntu literally took all night! And that was on a fairly fast computer (but in a 64mb virtual machine). I hope they fixed that bug in 8.10.
I would really recommend in your case avoiding the two biggest ram hogs (in my opinion) of modern Linux distros: xorg and firefox. If you use xvesa (which is used by Puppy, SliTaz, etc) and/or a different browser (kazehakase, links, dillo, etc) it will keep your ram usage down so you don't go into swap as quickly. You can "fake" having lots of ram by creating a big swap partition, but it will be slooooow!
I love CrunchBang, but being an Ubuntu-based distro, it does have a certain amount of "baggage" and will never be as light/fast as DSL, Puppy, SliTaz, etc. on ancient hardware. I personally think SliTaz is the most "Crunchbangy" of the lite distros (note however that you need the slitaz-loram "flavor" if you have less than 160mb) and would recommend it if, like me, you find Puppy to be too "dumbed down."
But, I hope you get CrunchBang Lite working and share the good news with all of us! That would be the best outcome...