Once again: Error: cannot allocate vector of size

Hi,

I have browsed the help list and looked at the FAQ but I don't find 
conclusive evidence if this is normal or I am doing something wrong.
I am running a lm() on a data.frame with 27136 observations of 6 variables 
(3 num and 3 factor).
After a while R throws this:

lm(log(y) ~ log(a) + log(b) + c + d + e, data=reg.data , 
na.action=na.exclude)

Error: cannot allocate vector of size 203.7 MB

This is a Windows XP 32 bit machine with 4 GB in it so that theoretically, 
R should be able to claim close to 2 GB.
This is the gc() after the regression:
         used (Mb) gc trigger  (Mb)  max used   (Mb)
Ncells  272299  7.3     875833  23.4   1368491   36.6
Vcells 4526037 34.6  116536251 889.2 145524997 1110.3

memory.size(max=T)

[1] 1230.25

memory.size(max=F)

[1] 47.89

Looking at memory.size, R should be easily able to allocate that space, 
shouldn't it?

Many thanks for any hints!

--Werner