Dave that 2.96GB is what the operating system is reporting it can access, system memory That is not the value of what is installed on the computer. Almost never is the system memory equivilent to the actual amount of memory installed on a computer/laptop. Go to start, all programs, accessories, system tools, system information. Under system summery you should find the value that XP knows is installed next to "Total Physical Memory". If the total physical memory there is reported other than 4GB I would run Memtest on it's extensive test to see if all of your memory is good and/or pull both memory sticks to verify you actually have 2, 2GB sticks installed. If all that comes back clean you have a problem with your Northbridge.
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When you acquired this laptop did it only have 1 2gb stick of ram in it? In your BIOS: What do you have your video memory set for? Do you have any shadowing, buffering or caches?
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