If you're a pro Photoshop user, you might want to be looking at anywhere between 8GiB
Not really, considering that XP has a 4GB max. and by default will only have the first 2GB accessible by applications (the other 2GB is for use by the OS itself)
You can tweak some of the startup settings and allocate up to 3GB to your applications, but more than 4GB is completely pointless, at least with the 32-bit version of WinXP which he's likely to be running.
And you do definitely run into diminishing returns: the difference between 512MB and 1 GB will be more noticable than 1GB->2GB...