Calculated the 128^3 size from the 2MB map size. I myself rarely play minecraft (because it is highly addictive and I have a life to live ), so yes, I was talking about something I don't know about. I know however, that in 1996 the TES: Daggerfall was a full 3D game with an explorable area greater than the UK, running on an Pentium with barely 40MB of RAM, so IMHO Minecraft with its graphics so close to the '90s games should be able to pull the same trick.
I think the main problem with Minecraft is the fact that it is written in JAVA. I imagine (again I don't know for sure) that each block is an object w private data of its position, orientation, texture, whatever, so it is waaay more than 1byte / block, hence the big memory consumption. Also, easy to write the code, but horrible to render the graphics. Last time I checked JAVA was awful with memory handling. I also guess that there is no 3D-acceleration in the game. Fact is that my Core i5 machine while does not lag, uses 100% CPU while running the free beta, that should never happen with a game. A C++ rewrite and the use of 3D accelerators should make this game run smooth on any machine.
So again, I admit I'm not the hardcore Minecraft fan, but given what I see this is the problem with the game and is why I said it should run on an i486.