MySQL Cluster. Have I Chosen the Wrong Data Engine

you have a fundamental problem in your cluster design. Mysql clustering needs 3 servers. Suppose the wire connecting the 2 servers is cut but both machines are still running. If they both continue running they will be getting different data and be out of sync.

So with 2 machines they both must shutdown to prevent a split brain scenario where each node in the cluster has different data.

You can add a third machine that runs only the management node (which takes limited resources) that works with the data nodes to decide how to handle a failure. If the management node goes away but both data nodes are still running they will continue to run.

Here are instructions for a 2 data node + 1 management node configuration: http://dev.mysql.com/tech-resources/articles/mysql-cluster-for-two-servers.html

You have a server with 256M, but you can't use all of that -- remember there's some OS overhead. Add to that with the fact you're over committing as other folks have mentioned and you'll definitely thrash here. 256M is only enough for a small DB, 20 connections is a lot with what you've got configured.

1) reduce your max connections to 4 (you're using 3 out of 20)

2) optimize your query cache better; 8M is really large, and 64M total is a lot based on your hits/prunes; try a 4/32 combo and see how it goes. Really I think a 2/24 combo would work for you.

3) you have no sorts requiring temp tables, why is that max_heap_table_size verb in there? Comment that out, use the defaults

4) do you actually have 128 tables? Try cutting that table_cache in half to 64 or 48

5) reduce thread_cache_size to 4

6) optimize those tables to reduce fragmenting

Those are some things to start with. It looks like you threw a bunch of numbers in a config without any actual profiling to know what you needed and have created a mess; if all else fails go back to the defaults and get rid of your custom settings and start over using some performance tuning guides you can find on Google. Get the output of SHOW VARIABLES and SHOW STATUS, find any one of a bajillion tuning guides and plug in your actual, real numbers into their equations and that'll tell you the exact-ish numbers you need to put in your config file.