I believe you will find that the JVM won't start if you set the memory too high on your system (something like "Could not reserve enough space for object heap")
How many users are you planning to have? If it's just a few, openfire should run alright with 128MB or so. If you are planning to have more than a dozen active at any one time, you really should look into getting more memory in your server. This is doubly true if you're planning to run a database on the same server. You don't want to run Openfire on a server that's running in swap memory.
Another thing - the version of openfire that ships with Debian is probably really old. Get the latest version, or at least 3.5.