Good choices. A 32bit O/S can only see 4GB, but this includes video RAM, so you'd only see around 3.2-3.5GB. If you're cutting back to 2GB (which ought to be enough), you'll be fine with 32bit Windoze.
Your system picks look good.
Nice build! The sweet spot of price/performance, easy to upgarde and O/C. I'd go for 4GB SuperTalent PC 6400 4-4-3-8 ($103 @ eWiz). I'd put the $50 saved into a Gigabyte Triton case and a separate PSU.
Awesome, thanks for all the feedback folks really appreciate it.