The answer to this question is really "depends on who you ask".
Some say to use PAE, which will allow you to address higher than 4GB BUT Microsoft will NOT let you on many of 32bit versions of Windows.
The following table specifies the limits on physical memory for Windows 7.
Physical 4GB limit, period. It's a licensing issue. There might even be a "hack" floating around to let you use more than 4GB, but I don't remember.
Please do note: Vista and Windows 7 on 32bit will report the TOTAL PHYSICAL RAM you have in System, but it will ONLY use 4GB of it. So, shoving 16GB in a computer running 32bit Windows will only use 4GB ACCORDING TO MICROSOFT even though "System" control panel will show 16GB. Windows 7, Vista, and XP 32bit will only use 4GB of RAM, its a fact. However, certain versions of Windows Server WILL use more than 4GB with PAE enabled.
For those going "your wrong PAE will allow you to to use more than 4GB", yes I agree, however, Microsoft says that you can only use 4GB on most of the 32bit desktop OS so if you feel that page is in error send them an email or call them to complain.