i had the default 512, and then got a gig and noticed a HUGE difference. i don't know if this has to do with the photoshop update or ram (probably ram) but it is real fast. Can't wait for PS CS.
I don't know about the ram allocation on the Dual G5, but I would assume that it uses all the ram. But I have no idea. All I know is that I love my G5 and can't compute on anything but it.