My system does this occasionally as well. I'm running an old AMD x2 64 running 32 bit XP (yes, I know). It works fine with a couple peculiarities, with this being one of them.
The way I interpret the 3.5GB 32 bit limitation is, I have 4 GB of physical RAM, and I disabled the swap file. I noticed a (very) slight performance boost when I did this, and have never looked back. If memory serves, that 3.5GB limitation includes both physical RAM and swap file.
It seems the first time I load the game after a boot, it's caching all that stuff, hard drive is spinning hard, and my framerate goes through the floor. After it finishes loading whatever it is loading into the background that first time, the game seems to load much faster when I go into it until I reboot the machine again. But, as the OP said, that first time quite often it disables those detailed settings.
OOZ is correct, a 32 bit app can only use 2GB RAM. I don't believe Windows makes the distinction between swap file and hard RAM, does it?
All I know is when I build my next AH rig (hopefully soon) it's going to have a solid state HD.
Wiley.