The thing about a chatroom and load, is that your server is effectively just message passing, and if there is any CPU spike, that is all it is - a spike, which VPSs for the most part are fine with.

When you are executing physics and logic 30 times a second constantly regardless of load (so I made a mistake in phrasing there in my blog post), then you will be throttled on a cheap VPS because you're no longer being a good citizen - which was my point in that post if I recall correctly.

To my recollection, this hasn't got much to do with memory at all. I hope this clarifies what I meant to say a bit more.