> we also need memory protection / isolation
I seem to remember that memory segments came with a permission system (read-only, read/write, execute) in 'protected mode'. Probably only added in the 286 though (I was always more of an m68k guy at that time).
I was under the impression that the permissions only kicked in once you were in 32-bit mode on the 386, what Windows called "386 Enhanced" mode.
Maybe (I think it's possible in protected mode), but it still has an allocation problem, imagine there are programs A, B, C in the memory. Later, A and C are unloaded, leaving 2 free holes, totaling in 2MB. Now you want to load a 2MB program, but there is no unfragmented 2MB free block. The only solution I see, is to shift some loaded programs, which might be slow and even risky. Paging makes this problem much easier. Also, paging makes permissions and memory sharing more granular.