Ironically I think to make the best use of such a small memory window, you'd want a compacting garbage collector. Lots of the 16-bit era BASICs used compacting GC for their strings.

Yes you can statically allocate, but who wants an artificial limitation like "16 strings, 256 bytes each" when some users want 200 strings of 8 bytes and some users want 4 strings of 500 bytes. Static allocation is something you can do when your memory is large compared to your use cases.