It does in a way. I watched my system work with its memory while running Cool VL. It is swaping parts of Cool VL's memory into the pagefile even while it's active and on top. None the less WebGearbox's system actually used only 0.5 GB of it's physical memory.
Here are the values of memory usage of Cool VL on my system. All of them are only physical memory usage, so it's: (actual memory need) - (what's swaped out into the pagefile).
105 MB -- not connected
378 MB -- draw distance 144m in fairly crowded place (so no problem with 2 GB RAM)
740 MB -- max draw distance while standing still (reduced graphics a bit .. no error anymore)
888 MB -- max dd, caming - Memory Usage Safety Check kicks in and reduces draw distance. Memory usage decreases by about 10 MB then stays the same.(!)
1570 MB - had to try hard to get it as high with my new settings, not only caming avatars, but all over the 512m. But this is when it finally crashed. The pagefile had about 2 GB of Cool VL at the time, so it makes for over 3.3 GB total and had to crash.
That pretty huge gap between Safety check measures and actual problem is going to make me turn it off.
I'd rather have a slow down instead of a crash or a view distance of max 100m. Also its running smoothly, don't really notice problems with the swaping.