First of all, you can usually only use a single stick of RAM in one specific slot. See your motherboard manual.
The ONLY way you can proceed is to:
1) test a DIFFERENT stick of RAM, or
2) test that stick of RAM in another motherboard by itself, in the proper slot
It sounds like your RAM received a static shock or other damage and is now defective.
My advice is to buy a 2x1GB kit like this ($32):http://us.ncix.com/products/?sku=18581&vpn=TWIN2X2048-6400&manufacture=Corsair
If you have 64-bit Windows you may wish to get 4x1GB instead. Windows 32-bit can't use all 4GB.
Windows 32-bit and 4GB limit:
32-bit can only "see" 4GB of memory locations. However this also includes video memory. So if you have a 1GB video card you're already down to 3GB. There are other resources that use up memory allocation so with 32-bit Windows it's common to only see less than 3GB.
Still, RAM is cheap enough that you may wish to install 4GB no matter whether you have 32-bit of 64-bit Windows.
(See your motherboard manual for number of RAM slots and maximum RAM size for each. If you have only two slots, consider 2GB RAM modules, i.e. 2x2GB but ONLY if your motherboard manual states it supports 2GB modules.)