I have been told that this will happen if the motherboard is not capable of supporting but 3gb of ram. Thus it is only utilizing 3 of the 4 Gb. We have the same thing on all of our machines it shows 3.5 Gb even though we have 4. I have not investigated this any futher.
If you are running Windows XP the OS is limited to 3.5GB regardless of how much memory the motherboard can support or is installed in the system. If you want more memory available you will have to go to Windows XP 64bit, Windows Server OS, or a Linux distribution.