When you say that you have tested the memory modules, what did you use to test them? If you havent done so already run memtest on them. www.memtest86.com.
Also what does it show up in bios? 1gb? Does the bios memory test come out alright?
From the sound of it, it sounds like faulty memory modules. If it had found 512mb I would be much more confident that there were just some setup problems. But that it only sees half of one memory module isnt good
I know it is really bizarre.
I have loaded the system with Winternals CD and UBCD and both work with 1 Gb.
So I trust a reinstallation will work but I would like to avoid it