Yes, system RAM can be used as VRAM. It's a common tactic among APUs and low-impact graphics. Generally it's used to keep the cost down, but it ends up cutting performance pretty badly most of the time.
If I remember correctly from last time I checked, the PS3 uses 256MB of RAM and an additional 256MB of dedicated VRAM. The 360 uses 512MB of RAM, sharing the system RAM as if it was VRAM.