Try merging some of the layers, once you get their contents positioned where you want them.
Also, if you have layers whose visible parts don't overlap or touch, merge those together. If you need to work on one of the parts you can then just select the portion that you need to paint, filter, etc, and cut it to a new layer. Work on thenew layer and then merge it back down if it's still seperate.
I dont use paintshop, so I dont know excclty where the memory settings are. In photoshop you can tell it to use a 'scratch disk' which allocates a swapfile for the program, in addition to normal memory. Check for options dealing with disk space or temp files