http://www.codinghorror.com/blog/2007/03/dude-wheres-my-4-gigabytes-of-ram.html has a decent explanation about 4gb of memory on 32-bit systems.
And yeah, 4gb is the end of the line for Morrowind.exe, even on a 64-bit sytem. Even with the large address aware flag, it is still a 32-bit program, and thus can still only access 4gb. Still, 4gb has been plenty for me so far. If you start to run into trouble with memory at that point.... tell me where you're getting all those mods from, because I must be missing a fair few!
Nice link. I made some tests when beta testing Vista's RCs back then. This memory problem was a real issue. The more your video card has RAM, the more it eats from your system RAM. This weird problem is minimal like 2 MB system reserved space with an x64 OS.
Ugly 32-bit grayness
http://www.sevenforums.com/attachments/news/167d1225575983-windows-7-resource-monitor-windows-7_resource-monitor.jpg
good looking x64
http://i39.tinypic.com/mafarr.jpg
Also I can confirm 7 and Vista is pretty smart to load Morrowind files to that stand-by area(SuperFetch). I don't get loading screens between cells thanks to MS.