Thanks Matthew, you are absolutely right.

I am working on Windows XP SP2 32bit with R versions 2.9.1.

Here is an example:
  d <- as.data.frame(matrix(trunc(rnorm(6*27136, 10000, 100)),ncol=6))
  d[,4:5] <- trunc(100*runif(2*27136, 0, 1))
  d[,6] <- trunc(1000*runif(27136, 0, 1))
  for (i in 4:6) d[,i] <- as.factor(d[,i])
  lm(V1 ~ log(V2) + log(V3) + V4 + V5 + V6, data=d)
  memory.size(max=F)
  memory.size(max=T)

I managed to get it run through after setting the 3GB switch for Windows and
with a clean R session.
I also noticed later, that after removing na.action=na.exclude more
regressions run through.

But before and after the lm() it seems there should be enough memory which
means that lm() builds up some quite large objects during its computations?
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