I had 1gb ram installed in 98, and everything seemed to work fine - Quake 3, Diablo 2 anyway.

Then I found Dosbox didn't run, nor did any DOS games, giuving the "Out of memory" type error. Trying the configuration fixes suggested by Microsoft just caused other errors [such as in motherboard probes, plus it thought virtual memory was turned off].

Removing half the RAM solved these problems.

Yet I have another machine with 768mb, running Win98, and it never has problems like this.

Clearly more to it than "having ram over 512mb".