I've used the hacked iTunes 1.1 under 8.6 on my 1400/166/48. I can get skip-free playback only by turning OFF virtual memory and using a stripped down extensions set.
7.6.1 will be a lot easier on RAM usage, but 8.1 and up use more PPC native code for speed. 8.6 and 9.x are a bit bloaty RAM wise. 8.1 might be your best compromise for RAM, speed, good looks and modernity, especially if you load the Carbon 1.6 extn from 8.6 or 9.x
7.6.1 will be a lot easier on RAM usage, but 8.1 and up use more PPC native code for speed. 8.6 and 9.x are a bit bloaty RAM wise. 8.1 might be your best compromise for RAM, speed, good looks and modernity, especially if you load the Carbon 1.6 extn from 8.6 or 9.x