Typically, you don't need to allocate much to the virtual machine. I have 2GB in my SR MacBook Pro and I only set VMware to give the virtual OS 512MB. This is for many reasons.
1) Anything around 512MB (depending on the machine) will run your virtual OS just fine, and anything more than that (again, depending on the machine) has the potential to simple slow the host OS down...resulting in a slower VM even though it has a lot of RAM allocated.
2) The virtualization processes allocate more than this amount for the processes that are running the virtual OS. If you allocate 512MB, the whole business of running the virtual machine is actually taking up more like ~750MB.
3) Anything that you would normally do in a virtual OS shouldn't need any more than this amount of RAM. Resource intensive applications should be used in a native environment (games, CAD, etc), not a virtual environment.
Certainly you can allocate as much as the virtualization program will let you, but you gain little from setting the amount too high.
Thats werid....I'm running 1.25GBs, and I have allowed it to use 1Gb(only because I was running in full screen mode, just to play around in)...I don't think parralles has put a limit on it(minus what your Mac needs to run)
I noticed this too. I can only allocate 900-1250MB (it varies strangely enough) out of 16GB available on my Mac Pro. Very annoying I must say.
It must have something to do with the 32bit nature of WindowsXP (and perhaps Parallels). I believe VMWare is capable of running 64bit VM's and apps, therefor allowing greater mem allocations than 3-4GB.