If you want to check what memory is compatible with your system use the crucial memory scanner website. It will tell you how much you can increase your memory by as well. Just note down the specs and then buy the same memory cheaper elsewhere !!!
http://www.crucial.com/uk/systemscanner/index.aspx
Windows XP will report higher than 2 Gb if you have Service pack 3 installed but a 32 bit Operating system like XP will never show more than 3gb as it cant phyiscally deal with such large amounts. However if you have XP professional you can use the /pae switch on the startup to address more than 4gb of ram.
http://www.microsoft.com/whdc/system/platform/server/PAE/PAEmem.mspx
Personally I wouldnt waste money upradging the ram, XP runs fine on 2gb and unless you are encoding or decoding video on the fly more memory wont make much of a difference to the overall speed.
If you computer feels slower do some housekeeping, run a defrag and disk cleanup and then use ccleaner to clear any uninstalled program rubbish to improve your system speed.
"if it aint broke, why fix it"
SONY KDL-40Z5500 & LG-AN110, STR-DB2400ES, BDP-S363, DVP-NS903V, WINDOWS 7 Media Centre and MA RS6AV all linked with (QED Performance HDMI and Silver Anniversary Bi-Wire)