XP runs fine with it; it just can't address all the RAM (not the 32-bit version anyway). Because of this, my install of XP reports/uses 3.25GB of RAM; I knew that when buying 4GB, but RAM was so darn cheap it made sense for down the line (I don't plan on switching to DDR3 any time soon). There are some reports of the odd application that doesn't like having more than a certain amount of RAM on a 32-bit OS, but I haven't found it yet, and I still have one 16-bit app I occasionally run left over from Windows 3.1 days that works fine.
I find that going from 2GB to 3GB of RAM has noticeable differences if you run very heavy apps (read: Adobe CS3), a large number of apps at once, or if you have a really heavy game you occasionally wish to Alt+Tab out of (e.g., Oblivion, Stalker). I'm also told that in dual-core systems, the benefit of more RAM is greater (less likelihood that an individual core will be starved for resources), but while that seems logical enough, I've done no testing of my own.
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