You have only 4 GB of RAM installed. You can't get more RAM than what you have installed. If the OS sees 3.5 GB, it correctly sees how much is physically available to it.

A single process will have only 2 GB available to it unless you install some kernel patches which move the shared-memory boundary. On the other hand, if you use shared memory (for postgres, oracle, maybe mysql, large virtual ram disk), you can utilize all of the memory currently in your system.

If you want to expand another gigabyte or so, you'll need PAE or a 64-bit OS.