Thank you all for your perseverance. The discussion has helped me better understand how to use mpd (e.g. as sudo vs daemonized as tc). Your comments also helped me realize what I was doing wrong. I apologize for my carelessness. I had read the note about creating necessary directories and after reading 'playlist directory' in mpdconf.example, I just assumed the log, database, pid and state lines were also for directories (though it clearly writes 'log file', 'database file', etc. My mistake was to not onlyexecute mkdir -p ~/.mpd/playlists, but to also execute mkdir -p ~/.mpd/log, etc. Things work as expected when I do not create these directories.
Regarding the issue of ram, thank you to SamK for the suggestion about /opt/bootsync.sh. I am not familiar with bootsync.sh (I have used bootlocal.sh), but I will look into this and see if I can make it work on the 256mb ram computer.
Thank you all for your assistance and advice to get mpd working on the 512mb ram computer.