Yes, the Cool VL Viewer, unlike all other viewers, watches its memory usage and tries hard not to crash when the
addressable virtual memory space gets low. At this point (when the viewer shows this message), other viewers would already have crashed without giving you any clue as to why...
Only if you configured your boot loader to reserve 3Gb for user space, else the limit for XP 32bits is 2Gb of user space per program... which is far from enough in crowded areas with a mesh viewer. See
this article and
this procedure for how to increase the user space to 3Gb. I suspect your problem comes from there.
Reducing the draw distance is one of the measures (after increasing the textures discard level) the viewer takes to try and lower the memory usage and avoid crashing. You may disable this behaviour by disabling the Memory Usage Safety Check (in the Advanced menu), but then you'll just crash sooner...