you have indeed run out of gfx ram, you need to lower the settings so the memory shows green. if it shows orange or red it means you have the draw distance (mainly) set to high try lowering it. most of the other bells and whistles take less ram to turn on but the resources available to run them are incrementally increased with each bump in draw distance.
best set everything at minimum then increase the screen rez. what memory you have left after that is the memory you have for the nice eye candy. remember that the gfx card has to hold back some ram so it can work effectively so you may not get above more than 280mb b4 it all goes red and becomes unplayable or just crashes out.