Have a look at this article and decide how much memory is needed nowadays.
Take into account that the graphs show how much memory is been used and not the minimum that you need in order to play. If the card had less memory than what is shown there it will start streaming and there is going to be some performance loss, but not all that much. Also note how resolution doesn't have an impact as pronounced as AA. If you can live up without it, then memory isn't an issue for you.
My conclusion after reading that is that 8800GT 256 could be an excelent performer. Of course it won't run as fast as the 512, but I'm sure it is going to perform above 8800GTS 320 levels, and again we are talking about 150 bucks, it's mainstream guys. You can't expect more from a card that cheap!! Sure as hell it will leave 8600GTS in the dust.
GDDR3 is expensive!! That is why lesser vram models are a lot cheaper and if you get performance levels close to the big one, then welcome. But yeah I'm going to buy the 512 one, because I love some AA and high res. But remember many out there don't.