Please don't be put off from installing 3.0. You have an install disk for 3.1, therefore you should have HDToolbox (or something like) and should be able to ensure that the drive is prepped properly. The base OS sits on 5 floppies of 880KB each, non-compressed and runnable as is, so installing some 'unnecessary' files is really not an issue. Drag and drop is easy and works fine as a method of installation.
Buying 3.1 ROMS/OS will not increase your RAM. The base A1200 is *only* 2 MegaBytes *total* RAM. This is not much. Virtual RAM in swap files is no match for real live RAM. (EDIT: I think it would be better to) Spend the money on an expansion card, which might also include a faster processor and could increase your pleasure no end...