There is an excellent, in-depth, well-argumented article by Geoff Chappell on the issue. Highly recommended in its entirety to those who want a complete understanding (additional side-reading and facts verification might be necessary).

A single citation to get you started:

There is already on the Internet and elsewhere an awful lot of rubbish to read about this question. Hardly any of it would be worth citing even if I didn’t want to spare the authors the embarrassment. A surprising number of people who claim some sort of attention as expert commentators would have you believe that using more than 4GB of memory is mathematically impossible for any 32-bit operating system because 2 to the power of 32 is 4G and a 32-bit register can’t form an address above 4GB. If nothing else, these experts don’t know enough history: 2 to the 16 is only 64K and yet the wealth of Microsoft is founded on a 16-bit operating system that from its very first version was designed to use 640KB of RAM plus other memory in a physical address space of 1MB. Some remember this history and add seemingly plausible qualifications that exceeding 4GB is possible only at the price of nasty hacks that require everyone—well, all programmers—to jump through hoops. Fortunately, Intel’s processors are a lot more advanced than the 8086 from all those years ago.

P.S. Unfortunately, patching the kernel won’t help make Windows XP see more than 4GB RAM: even though the kernel itself does support more RAM (with PAE), starting with SP2 the HAL was modified in a way prohibiting access to any RAM beyond 4GB. Patching may only be suggested to devoted geeks with Vista’s and 7′s.