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Virtual Machines

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Since I have been looking to add a new server to my household I have been introduced to virtual machines. However there was a question that I could not get a clear answer from.I know that win XP 32bit version has a RAM limit of 4gb, going over would be useless even if the PC has 8gb it doesn't increase speed. However if I install a virtual machine will it share the RAM within the limit of the host machine, or can it take advantage of the full RAM available?This could fall in the same category, I got Linux on a usb boot disk, and when I boot a PC I boot right off the usb stick. The operating system instead of running off the hard drive, it will save itself in the RAM. This gives it a massive speed boost. So question would be. Would it use the full 8gb of RAM, or would it limit itself to 4gb like windows?

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