[knc1]

Well, if you find you have to use a partition (a device) rather than a file...

Make a file of zeros:
dd if=/dev/zero of=devfile bs=1M count=128

Find first available loop device:
losetup -f
(for example, returns 1)

Turn the file into a block device:
losetup /dev/loop1 devfile

Now setup the entire device (think: swap device) as swap:
mkswap /dev/loop1

Then use that "swap device" for swap:
swapon /dev/loop1

See what "free" has to say;
Also check "cat /proc/swaps"
And "cat /proc/vmstat" will give you an idea of what is happening to your memory.

To reverse the process:
swapoff /dev/loop1
losetup -d /dev/loop1

Which leaves the "devfile" ready to be used next time.
I.E: You don't have to refill it with zeros or run mkswap on it again.

In case memory isn't the problem -
The next question...
enter the chroot, post the output of the "mount" command.