Yes, it will test whatever memory you have. My PowerBook was freezing all of the time so I ran my Hardware Test CD and it found my new memory to be bad. I replaced it (under warranty) and I've never had a problem since.
It would be rather silly for the Apple Hardware Test not to verify third party memory, considering that Apple doesn't manufacture memory at all. All memory used in Macs is manufactured by some third party.
Been having problems with my iDVD burns and someone mentioned that if my memory is bad it could cause problems. Well, my memory tested ok... so now I'll ponder this some more. Thanks everyone! Happy 2005!