How will a swap partition/file affect the system?
so what do you think, is it better to use swap space or not for small memory phone such as T-Mobile G1 to increase responsiveness and overall performance?
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I found it better to use compcache rather than swap. Basically -- a section of RAM is reserved and used as a swap space with compression. Even with the performance hit from compression, it was sufficiently faster than conventional swap that it was a clear-cut winner in performance.
CyanogenMod supports it (Settings > CM Settings > Performance, I believe). I'm sure other mods include it as well, but I am not familiar with them.