Hi Bill!
Your best compromise would depend mostly on your priorities. 16MB of memory on the graphics card would be sufficient for 2D work, especially if the laptop's screen resolution is XGA (1024*768); but if you venture into any kind of 3D application/game at all, 16MB will be a significant limitation. Digital image editing is done in 2D, so the 16MB memory should support a 1024*768 screen happily with 32bbp.
However, another consideration is that system RAM is typically quite easily upgradable, whereas you're stuck with the graphics adapter for the life of the laptop. 384MB RAM should be sufficient for most images, unless they are very large, in which case 512MB may help somewhat in preventing excessive paging to disk.
Personally, I would go with 32MB of graphics memory. That would offer better future upgradability, as you've covered the component that most likely cannot be upgraded by the user. RAM can be added in future if it's necessary, and it's relatively inexpensive from Crucial.com too. 384MB is already a reasonable amount, and if you're into any kind of serious image editing, 512MB wouldn't be entirely sufficient either - Photoshop can easily run up a 1GB scratch file usage after a heavy editing session.
If this RAM upgrade is direct from the vendor/manufacturer, you could consider going to Crucial to buy it instead - it'll most likely turn out much cheaper that way. I've just ordered a Dell D600, and instead of going with a RAM upgrade through them, I decided to buy RAM from Crucial, and stick to the cheapest and lowest amount of RAM Dell will supply the machine with - that saved me a considerably, as instead of upgrading from 256MB to 512MB for £150, I simply bought an additional 512MB SODIMM module for £90 from Crucial to compliment the existing 256MB stick.
Anyway, just a few things to think about Either way, I feel that the system will be sufficient - both options would not affect the overall experience greatly, as the gains in certain applications due to the upgrade would be cancelled out by potential gains in other applications if you opted for the other upgrade, if you see what I mean.
Yoz