I got the following info from going under advanced properties of the display settings, then the Intel tab, then the Graphics Properties button, then the Information Tab, the View Report.
From what you have said, it looks like it might dynamically assign memory, but I don't really know much about this chipset....
All I know is that I didn't set it to 16 anywhere.
INTEL(R) EXTREME GRAPHICS REPORT
Report Date: 05/31/2004
Report Time[hr:mm:ss]: 10:11:56
Driver Version: 6.13.10.3510
Operating System: Windows NT* 5.1.2600 Service Pack 1
Default Language: English
DirectX* Version: 9.0
Physical Memory: 503 MB
Min. Graphics Memory: 8 MB
Max. Graphics Memory: 64 MB
Graphics Memory in use: 16 MB
Processor: x86
Processor Speed: 2261 MHZ
Vendor ID: 0x8086
Device ID: 0x2562
Device Revision: 3
* Output Devices Connected to Graphics Accelerator *
Active Monitors:1