It can be lower than that so consider yourself lucky to not have it any lower.
The BIOS is correct, XP is 32 bit and CORRECT so you can research it, but my advice is to do nothing. It won't move up.
Running Windows XP Pro w/SP3 on a Dell Optiplex GX280 w/4GB RAMn on a Celeron, 2.53GHZ CPU.
Bios shows 2 2GB DIMMs, memeory diagnostics run error free.
My Computer Properties show 2.99GB of RAM. Can the video be using that much RAM>??