Memory management in Vista and Win 7 is different than in XP. Win 7 and Vista use a pre-fetch cache where they attempt to load things into memory that it is anticipated you will be using in order to improve performance. If you look at the Performance tab of Task Manager, you will see the memory usage shown as Total, Cached, Available & Free. The Cached represents the pre-fetch I mentioned. If you load a program that requires more memory than is Free then the system can take from the Cached. Available represents both the Free and the Cached because that memory is available to be used if needed.
Windows also uses Virtual Memory to "trick" the system into believing it has more memory than it actually has by paging parts of memory out to the hard disk. Performance suffers because the hard disk is much slower then real RAM but it means you can load larger programs without crashing.
Between having Available RAM and Virtual Memory, the system should not crash when you attempt to load programs that require more memory than is shown as Free. Even though your system shows that it is using 1.7G at idle, you need to take into consideration the Available.
As pparks1 said, your system should not be crashing. You have either a software problem that is causing the crash or some of your memory is defective. You might want to DL and run memtest86
to test your memory.