The odd point is that he's not running out of proper usable memory.
The RSIZE for each process, wired, active is showing a reasonable amount. Thus wired+active is the actual physical memory used.
The inactive shows that lots of applications were loaded in the past. Add this to free and it shows the amount of memory you have available to use.
A low free value will hurt OS X as it uses free memory space for file caching. This may be partially why you're seeing a slow down (including virtual memory usage).
OS X should see that it's low on free space and dump some of the inactive space back into the free space.
The VSIZE shows the total allocated address space to the process. So it's showing large values that could be attributed to heavy application usage. There's a bit of debate on if shared library pages loaded on behalf of an application are 'costed' to that application(s) when mapped to it in the full VM address space (ie one page mapped into multiple applications may be counted once for each application thus inflating the apparent size of total VM assigned).
This is born out by the fact that I usually get zero swap paging yet it's showing 17GB of VM. My paging swap usage increased due to that 3.2GB RSIZE application last night.
So this may all be a bit of a hoax - the problem also shares it's symptoms with two other issues:
a) Overheating causing the machine issues such as throttling. You'll need iStat or better still smcFanControl (not sure if this has been discontinued though).
b) Hard drive failing - the machine lock ups caused by retries during read/write attempts. These will be available in the log.
*) Install messed up
Well when you don't know what the problem is - reboot, restart then reinstall in that order until it works!
