2 Gig is the max as far as I know. It can't handle 4 Gig due to hardware limitations.
I just installed XP using a spare copy of Parallels I had lying around and the XP disk that came with my Mini (nice to find a use for it). It runs a treat. I have "Spaces" set up and run XP in Space 2, so I can switch between fullscreen Mac OS X and fullscreen Windows XP at the press of a button. Looks great, and it's faster than I expected. Only took just over a Gig of my disk as well, and that's without stripping anything.