I've had this problem also.  The 1.3 install disk has a compressed
image of the file system that contains the tools needed to install the
kernel.  These are uncompressed into ramdisk, which eats up a lot of
the memory in a 4 Mb machine.

It would be nice if the install procedure had the option, for small
memory machines, to uncompress the tools onto the swap partition of a
hard disk and use that instead of a ramdisk.  (or maybe just the
ability to add some swap space before installing...)

I do have NetBSD 1.3 running on a 4 Mb machine (not a laptop), which I
installed by moving the disk elsewhere, installing NetBSD, and moving
back.  So if you can either move the disk, or borrow some memory, and
get NetBSD installed, it will probably run in 4MB once the
installation is complete.  

Keith