32-bit Windows has an address space of 4GB. Part of that is used by system BIOSes and graphics memory.
With a 256MB graphics card about 3.3-3.5GB of RAM can be addressed and used, assuming you have 4GB fitted.
If you fit a graphics card with 1GB of memory only about 2.6-2.8GB of the RAM would be addressable and usable.
It's just the limitation of a 32 bit OS.