The ATV1 has 256MB of RAM. I assume you are getting your information from the free command. Here’s what I get on a Raspberry Pi 3 with mediacenter disabled (numbers in megabytes):
osmc@osmc:~$ free -m
total used free shared buffers cached
Mem: 747 443 304 5 35 353
-/+ buffers/cache: 54 693
Swap: 0 0 0
I’ve allegedly used 443 MB and have 304 MB free - but there is 388 MB of buffer/cached data most of which can be freed if the kernel needs to use the memory. So, in reality, when stripped of all the buffer/cached data, the core memory usage, is more like 443 - 388 MB, which equals 55 MB. Allowing for a rounding error, it’s shown on the -/+ buffer/cache line as 54 MB used - and most importantly there is a true usable memory on the Pi 3 of 693 MB. That’s the number you need to look at.
Here’s a Debian VM that only has 512 MB:
total used free shared buffers cached
Mem: 494 483 10 8 24 373
-/+ buffers/cache: 85 408
Swap: 382 0 382
In this case, the -/+ buffer/cache line shows that the core usage is around 85 MB and 408 MB is still available for use.
So the bottom line is that you probably have more than enough available RAM on your ATV1 to run OSMC as a server.