In any case, PAE is necessary for Execute Disable (the capability to mark data pages as non-executable) so it's a good thing to have. However, if the hardware supports amd64 I'd recommend using a 64-bit kernel on any machine with 1GB or more. The thing is that Linux maps the physical memory in the kernel area of the virtual address space. In the default 3GB/1GB split, there's room for only 960MB of memory to be mapped. The rest is temporarily mapped in some window in the kernel virtual area (ok, I don't know exactly how it works but I'm sure about the need of additional memory management and the associated overhead). With 1-2GB memory it's better to use a 2GB/2GB split but you'll have to recompile your kernel for that. So it's better to move to 64-bit and save yourself the trouble. The memory consumption is a bit higher (I've seen quotes for about 20%) but you get generally higher performance due to the additional registers in 64-bit mode. Plus, you should be able to run a 32-bit distribution on a 64-bit kernel. I routinely do that in 32-bit root jail or LXC container.
Has anybody tried to install a 32-bit distribution and replace the kernel with a 64-bit one to see if it works out of the box?