Performance problems with a higher number of clients

Hello,

I am facing a problem trying to put 500 concurrent users accessing
a postgresql instance. Basically, the machine begins to do a lot i/o...
swap area increases more and more...

The vmstat began with 9200 (swpd) and after 20 minutes it was like that:

VMSTAT:

    procs                      memory    swap          io     system
      cpu
  r  b  w   swpd   free   buff  cache  si  so    bi    bo   in    cs  us
  sy  id
  2 29  1 106716   9576   7000 409876  32 154  5888  1262  616  1575   8
  12  80
  0 29  1 107808   9520   6896 409904  60 220  5344  1642  662  1510   9
  15  76
  0 89  1 108192   9528   6832 410184 172 138  6810  1750  693  2466  11
  16  73
  0 27  1 108192   9900   6824 409852  14 112  4488  1294  495   862   2
   9  88
  8 55  1 108452   9552   6800 410284  26  12  6266  1082  651  2284   8
  11  81
  5 78  2 109220   8688   6760 410816 148 534  6318  1632  683  1230   6
  13  81


The application that I am trying to running mimmics the tpc-c benchmark...
Actually, I am simulating the tpc-c workload without considering
screens and other details. The only interesting is
on the database workload proposed by the benchmark and its distributions.

The machine is a dual-processor pentium III, with 1GB, external storage
device. It runs Linux version 2.4.21-dt1 (root@dupond) (gcc version 2.96
20000731 (Red Hat Linux 7.3 2.96-113)) #7 SMP Mon Apr 21 19:43:17 GMT
2003, Postgresql 7.5devel.

Postgresql configuration:

effective_cache_size = 35000
shared_buffers = 5000
random_page_cost = 2
cpu_index_tuple_cost = 0.0005
sort_mem = 10240

I would like to know if this behaivor is normal considering
the number of clients, the workload and the database size (7.8 GB) ?
Or if there is something that I can change to get better results.

Best regards,

Alfranio Junior.