It'll use all it can get...

Windows, as most OSes with loads of butt kissing features will use all the RAM they can get their grubby hands on--efficient usage is another question and seems to only occur in System V Varients and NT. As far as your question goes, WinMe WILL go above 512 MB, however, the caching mechanism that MS impliments with Win9X kernels will cause WinMe to report an 'Out of Memory' error. The fix for it is here:

Fix for 512 MB error

My speculation as to why this is--if you're using this much RAM, you're probably using lots more and for professional tasks that are better suited to NT anyway.