I've followed this but when I run:-
#swapon /swapfile1
I get::-
swapon: /swapfile1: swapon failed: Operation not permitted
The system is extremely slow with 1GB of RAM trying to run GUI + applications + FreeNX server. Any help is highly appreciated.
Swapfiles are only supported on some openvz setups, and disabled on purpose by some admins so you cant use up much more resources than you've been alocated. You probably need to upgrade your vps.