It should work correctly with that specification, it's just being picky about what it wants, not what it needs (as far as I am aware).
The glitch/freeze you saw is not due to your hardware but due to your software (most likely anyway).
GTA4 is notorious for its compatibility issues.
Please ensure you have GTA4 running in compatibility mode with Windows XP (SP2) selected.
Please ensure that Windows is up to date and your game is also up to date.
Hopefully having all this done should fix your problem. (hopefully)
If you need any more info please ask.
PS GTA4 is not a Windows 7 friendly program, I may add the last person I attempted to help just gave up and installed XP to run it
, but he was rather impatient, I don't think you'll have to do that.