I must have missed something, what's magical about 1.7 MB free? You seem to be sacrificing much to get there. Is adding a fast ram expansion out of the question?
I picked the A600 up a couple of weeks ago for £25 (~$35-40 USD) and only did it as spur of the moment thing since I had an old A600 1MB memory upgrade and 2'5->3'5 cables to add a new internal hard disk/CF.
I want just to get it up and running and use for retro gaming/usage instead of wearing/leaving out my original A1200, hence I didn't really intend to invest.
You asked for software suggestions. You might consider an improved hard disk file system, like PFS3 (Hopefully, available in PD soon, it's much faster and more secure than FFS). There are faster serial port drivers, math libraries, and datatypes on Aminet.
I was aware of the likes of baud bandit etc. back in the day but really I won't be needing networking or port drivers. I'm aware of some shareware math libraries but never really saw the need to get them. I won't be using this machine as viewer so the datatypes aren't really applicable - viewing a JPEG might be a bit painful too

I used FFS as it was bootable and didn't want to set up multiple partitions on a 512 card that is regularly imaged...
[EDIT]Just found out that PFS3 might be bootable too by storing the driver in the RDB[/EDIT]
Are you trying to see how far you can push the system, are you primarily a gamer? What do want this system to do?
Have a single boot mode (no cut down startup) that will run as many games as possible but still have a decent/impressive (for A600) Workbench for day to day tasks (backup, extraction, file manipulation, mod playing, algomusic, etc etc).
Hope this helps explain
