It is useful to be able to change the Device emulators available RAM, however if you select File->Configure… in the emulator you are not able to change the values!
The supposed reason for this is that Windows Mobile does not support changing/adding RAM on the fly (if you put more RAM into your physical device, you have to restart it to be able to use it).
To change it: In Visual Studio, select Tools->Options…, then select Device Tools->Devices (You can also click Device Options on the Device toolbar). Select Windows Mobile 5.0 Pocket PC Emulator in the list to the left, and click Properties. Then click Emulator Options.
If you check the “Specify RAM size” checkbox, you are able to change the RAM (remember to restart the emulator!).
There are also some other important options here, I’ll come back to them later.
A final gotcha – if you have saved the emulator state any changes to the RAM will not be applied. You have to clear the saved state (in the emulator: File->Clear Saved State) and reset the Emulator for it to update.