Took me awhile to track down any info but this is what I came up with.
While 32-bit Windows XP can address up to 4GB of memory, only 2GB is addressable by applications. See
Memory Limits for Windows Releases
Memory above 2GB is reserved for the OS. If you have Windows XP Professional SP2 or better you can increase that limit to 3GB, but that entails modifying the BOOT.INI file, using the
/3GB switch. Yes this link is from HP but it is not specific to HP computers.
Modifying the BOOT.INI file is not something to be done lightly and can easily leave you with the non-bootable system.
So for all intents and purposes Windows XP 32-bit is limited to 2GB of memory. Will this stop the OS from displaying that there is more than 2GB installed? I don't know.