Okay I got it to work by running forge on windows. The windows computer was the exact same as the mac (double boot), yet it worked flawlessly; because it worked fine on windows, but not mac, I suspect that this may be a bug of some sort. (Or more likely, my mac just had something stupid installed that was preventing this from working)
Being out of memory couldn't be the problem. I ran the install, and watched the resource usage in activity monitor (mac command prompt) and I never dropped below 500mb of open memory.
So I tried to install the forge source using this guide on the forum (in addition to the readme): http://www.minecraftforge.net/wiki/Installation/Source
When I ran "intstall.sh" it would give me a very strange install log (below), and none of the forge files were found in the "src" file. I didn't see the forge files in Eclipse either. I tried this many times, and it always gave me the same result.
Thanks for helping.
Install log:
Pastebin link: http://pastebin.com/NtpY74kv