Eh, it was just a guess anyway. Perhaps it was because of that, although I never saw/heard my hard drive access anything so I'll never know. I am pretty darn sure it does use more than 256MB. I know I would find it hard to believe too, but in EE the AI has routines for every unit running all the time. This is what it means when it advertises "advanced AI". Remember this is the AI, not some graphics, which would be more sensible to cache on the hard drive like you said.
I'm 100% certain that in most games I played, there was a certain period of time when frame rates were okay at the beginning, and suddenly got worse. Then near the end of games, when the AI was almost dead it would speed up again. Also keep in mind I was using Win98se, which may not be the same as WinXp. (I did not modify my swap file settings and I have several gigabytes free, plenty of space for the swap file)
I should add that reducing all graphics settings (anti-aliasing/texture quality/texture filtering) had a negligible impact on framerates, which in my opinion adds weight to my theory that it's a lack of RAM, especially since reducing texture quality should also reduce the amount of hard drive access. I also used a RAM monitoring program and when I alt-tabbed during the middle of games I noticed my RAM was always very close to 0, like 0-1MB.