Win7 in XP mode Memory issue

No, 256MB is the virtual memory assigned to XP mode in the VM settings. A post elsewhere showed how to change this, http://blogs.msdn.com/b/ianm/archive/2009/09/20/changin...
Basically:
[Start | Programs | Microsoft Virtual PC | Virtual Machines | Then right click the VM and click settings] Click on Memory and then adjust the VM memory allocation. Note that if the VM is hibernated or running, you'll need to shut it down which you can do by clicking (in the running VM) Start -> Windows Security, etc.