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The Mac OS X Snow Leopard installer is referring to the free space in the hard disk, not to the amount of RAM you have. You can upgrade to Mac OS X Snow Leopard with 4 GB of memory.
You have to delete data from the hard disk in order to free up space, or move files to an external drive. When there are 5 GB or more free, run the Mac OS X Snow Leopard installer again and upgrade. After upgrading, open > Software Update.
If you don't know what to delete, maybe it's a good reason to format the hard drive and install Mac OS X Snow Leopard. To do this, make a backup of your data with Time Machine before > http://support.apple.com/kb/HT1427