I have upgraded my system from 2GB to 3GB. The system properties shows
2.99GB RAM. Bios also sees the RAM. Process Explorer (3rd party system
tool) shows 3GB of RAM.

So why does the system usage hover at 1.1 or 1.2GB no matter how many
programs I start? It seems like it is constraining itself artificially. I'd
expect the OS to grab more RAM over time as well.

Processor Scheduling set to "Programs"
Memory Usage set to "System cache"
Paging File - "System managed size"

Windows XP Tablet PC Edition 2005
Version 2002
Service Pack 3
Intel CPU T2400 @ 1.83 GHz