The dreaded “out of memory” error is caused by the fact that FCP 7 can only address 4 Gigs of ram. Those 4 Gigs are full of a lot of things other than cached files, so the actual number is even a bit smaller. The only thing that you can do to prevent the error is actually to use less memory. Thankfully, here are a bunch of tips on how to do that.
1) NEVER edit in h.264 or any other compressed format. It will add a little bit of transcoding time to the beginning, but it will prevent a lot of rendering and rerendering once in the edit.
2) Make your sequence settings (ideally) prores, and make sure that all of your footage is transcoded to the same flavor of prores (LT, HQ, 4444, whatever) This applies to framerate as well!
3) Ensure that your audio is aiff (not mp3) and at the same settings as your timeline.
4) Resize all stills to rough video sizes. 30,000 pixel wide files will bog down fcp immediately so crop or scale it down to something closer to your timeline resolution. If photoshop does this once, then fcp doesn’t need to do it a million times.
5) Flat stills are easier than layered files. FCP doesn’t have to deal with the precomp that psds or layered tiffs come in as.
6) Close unneeded tabs in the timeline and canvas.
So that’s basically it. Pre-process your footage to be 100% the same as your timeline and work with as few sequences open as possible. In my experience it seems that once things start erroring there is very little that helps outside of a restart.