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I have a similar server setup, mine has 2 gigs of ram though.
There are about 5 or 6 blogs on it, each gets a couple hundred unique viewers a day. Two of the blogs get 550-650 a day. The blogs have 2-5 pictures per post.
My server handles the load just fine. Not sure the max amount of WP blogs you'd want to use, because I haven't had more than that on this machine. I would feel fine going with 20+ no problem, and more would probably be fine.
I'm moving to a bigger server this next week though, I found a good company to switch to.
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