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(at)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.