<sigh> It never ever ever ends.
Yeah tell me about it. Let the OS manage itself. Memory is managed in Android very similar to how it is managed in Linux. It fills itself up as much as it can and caches as much as it can. When memory is needed for something new the cache is dumped first and then unnecessary and empty apps killed by the OS. The more you "manage" your phone the worse things are going to get. IF you are experiencing some kind of massive slow down I dare say it may be a 3rd party app that you downloaded that is misbehaving.
I have tested this ad nauseum on my phone. Auto killers, process killers, manual task killing, less or more aggressive memory management. I have come to the conclusion that after lots of FC's, headaches, etc... that Android in its' stock form (NO memory manager, task/process killer, battery manager) performs the best overall.
EDIT: A better explanation of what those little numbers mean
Finally, along the bottom of the screen are some obscure numbers. If you know how to interpret them, this gives you a lot of information on the memory status of your device:
* Avail: 38MB+114MB in 25 says that the device has 38MB of completely free (or likely used for unrequired caches) memory, and has another 114MB of available memory in 25 background processes it can kill at any time.
• Other: 32MB in 3 says that the device has 32MB of unavailable memory in 3 unkillable processes (that is, processes that are currently considered to be foreground and must be kept running)