This question actually seems to come up every so often here. Mark has the correct (and most commonly employed) answer, but let me try to add what I can to make this clearer.
The error message is a little misleading. SQL Server tells you that it doesn't have enough memory to run the query, but what it really means is that it doesn't have enough memory to parse the query.
When it comes to running the query, SQL Server can use all it wants - gigabytes if necessary. Parsing is another story; the server has to build a parse tree and there is only a very limited amount of memory available for that. I've never found the actual limit documented anywhere but for a typical batch full of INSERT statements, it can't handle more than a few MB at a time.
So I am sorry to tell you this but you cannot make SQL Server execute this script exactly as it is written. No way, no how, doesn't matter what settings you tweak. You do, however, have a number of options to work around it:
Specifically, you have three options:
Use GO statements. This is used by SSMS and various other tools as a batch separator. Instead of a single parse tree being generated for the entire script, individual parse trees are generated for each segment of the batch separated by GO. This is what most people do, and it is very simple to still make the script transactionally-safe, as others have demonstrated and I won't repeat here.
Instead of generating a massive script to insert all of the rows, keep the data in a text file (i.e. comma-separated). Then import it using the bcp utility. If you need this to be "scriptable" - i.e. the import needs to happen in the same script/transaction as the CREATE TABLE statement, then use BULK INSERT instead. Although BULK INSERT is a non-logged operation, believe it or not, it can still be placed within a BEGIN TRAN / COMMIT TRAN block.
If you really, really want the INSERT to be a logged operation, and don't want the insertions to happen in batches, then you can use OPENROWSET to open up a text file, excel file, etc. as an ad-hoc "table", and then insert this into your newly-created table. I'm normally loath to ever recommend the use of OPENROWSET, but as this is clearly an administrative script, it's not really a major problem.
Previous comments suggest that you're uncomfortable with #1, although that may just be because of an incorrect assumption that it can't be done in a single transaction, in which case see Thomas's answer. But if you're dead-set on going another way, I suggest going with #2, creating a text file and using BULK INSERT. An example of a "safe" script would be:
BEGIN TRAN
BEGIN TRY
CREATE TABLE MyTable (...)
BULK INSERT MyTable
FROM 'C:\Scripts\Data\MyTableData.txt'
WITH (
FIELDTERMINATOR = ',',
ROWTERMINATOR = '\r\n',
BATCHSIZE = 1000,
MAXERRORS = 1
)
COMMIT
END TRY
BEGIN CATCH
ROLLBACK
END CATCH
Hopefully this helps put you on the right track. I'm pretty sure this covers all of your available "in the box" options - beyond these, you'd have to start writing actual application programs or shell scripts to do the work, and I don't think that level of complexity is really warranted here.