Is that rumour still floating around? Sheesh. That had to do with the old TX chipsets only being able to address 64MB of RAM at one time. Not that you couldn't put more in it, not that it wouldn't recognize it, you just took a small performance hit for doing so.
Windows 9x kernel, as I recall now, can address up to 4GB of RAM, but only 2GB at once. There's some odd issue/feature/bug with Win98, or Win98SE with machines with over 512MB though.