Much, much more RAM. 2 Gb would be a start, 8 Gb would be the max practical. More is better!
Backups are really good (as you've noticed). Make backups, automate that process, then test to be sure that you can restore the data that you need from them. Repeat these tests periodically (at least once a calendar quarter).
Use SQL Profiler to trap a sesssion or three of heavy usage. Look for the poorly performing queries. Optimize them any way that you can, especially if you have the ability to alter those queries. At the very least, check to be sure that they have indexes using the Query Analyzer Index analysis tool.
Use performance monitor to see what is going on inside your server. Look for anything that seems to be slowing things down (once you get more RAM, it will be the major bottleneck until you get more).