schnable

I'm not a WinXP expert, but I can comment in general.
Virtual Memory is used like physical RAM--when RAM fills up, a program may be "swapped" into virtual memory on the harddisk while it is running in the background. When this program actually does something, or especially when you are interacting with it, it needs to swapped back into real RAM. All of this swapping is not exactly quick, due to overhead of the swap process in general, and espcially because a harddrive is much slower than RAM and tends to be a bottleneck in an otherwise fast system. If you had 3gb worth of programs running, the constant swapping would slow your system down considerably (you have probably noticed your harddrive "thrashing" at points in time, swapping causes this).

Additionally, why the hell do you need 3gb of memory?? Unless you are running a very complex scientific or graphical program that stores a lot of data in memory, you are probably never going to come close to utilizing all that memory, thus wasting harddrive space. I also remember older versions of windows seemed to have a problem overutilizing virtual memory when there was plenty of physical ram, again causing harddrive thrashing and overall slow performance when it was unnecessary. I haven't used XP that much so I can't comment on this particular aspect.

Assuming that your operating system has good virtual memory algorithms, setting a VM size that large will not be particularly harmful, but will be wasteful.