http://xbox.gamespy.com/xbox/microsoft-xbox/595060p1.html?fromint=1
Question: Why is there only 256 MB of RAM?
Answer: The mistake many readers are making is to equate the amount of RAM to that of a PC. A console does not need as much RAM as a PC because it's a specialized device that serves a specific function and it does not need to run a full operating system.
That said, a few developers pulled me aside to tell me that they think Microsoft is upping the RAM to 512 MB.