Deleting millions of rows

I'm using 8.3.5. Table ts_defects has 48M rows. Through psql: delete
from ts_defects;
Result: out of memory/Can't allocate size: 32
I then did 10 or so deletes to get rid of the rows. Afterwards, inserts
into or queries on this
table performed significantly slower. I tried a vacuum analyze, but this
didn't help. To fix this,
I dumped and restored the database.

1) why can't postgres delete all rows in a table if it has millions of rows?
2) is there any other way to restore performance other than restoring
the database?

Thanks,
Brian