If you have a cpu with virtualization support then it is very possible to run a 64bit guest on a 32bit host. And yes, it can use memory that your host wont touch.
Thank you - I do have virtualisation support and the VM is up and running (so far!) ok. Very useful to know that the extra Ram could be used. I'll go ahead and get the RAM and see what happens. If push comes to shove i'll upgrade to 64 bit Win. but would be good to avoid a clean install.