There is no downgrade from 32bit to 64bit. Instead, Windows XP x64, Vista 64 and Server 64 all have 32bit emulators in them to make 32bit programs work on them. The issue is drivers for 64bit are completely different for 32bit.
As for the RAM issue. You can use 4 gigs of RAM on a 32bit OS. The way RAM limits are determined are by your physical extensions and how much your CPU can handle. Most processors now a days are are 40bit, meaning 2^40 bits of memory or 1,099,511,627,776 bits of data. 128 gigs of RAM to be exact. I know AMD's newer processors are 48bit, or 327,680 gigs of RAM. The reason for this is because 64bit can actually do 17.2 billion gigs of RAM, which no one in this day and age will ever need.
Now as for your computer being able to use it, yes a 32bit OS can. The reason you don't see all the RAM in the OS is because the system actually uses some of it. The stuff like video cards, LAN cards, RAID cards, chip sets, etc. They all use RAM, just a bit (or a lot in the case of integrated graphics) of RAM to do what they do. So when you add 4 gigs of RAM to a 32bit OS, the system takes some of that RAM for those things and uses it there. This is the reason why some people see 3.5 gigs, others 3.25 gigs, and some 3 gigs. So your computer is using it, you just can't use it in Windows is all.
Lastly, your motherboard is generally the limiting factor with the amount of RAM you can have. Most are 4 gigs max, some are 8 gigs now but you have to generally set it up to be, running RAM at a lower speed, more voltage to the RAM, and possibly more chip set voltage as well. The two towers I have 8 gigs of RAM in, one I had to add .05v to the chip set, the other I didn't. Both had to be set to DDR667 to run. All of my other computers are running 4 gigs, only a couple with Windows XP, most Windows XP x64.