1 GB isn't really all that much for MS Sql Server - our Sql 2005 cluster machine use 3 GB when generally quiet, and while we're not a startup, we don't have a particularly taxing db architecture.
3 GB physical RAM is not all that much for a SQL machine; our cluster machines have 32 GB of RAM and will use a great deal of that when under stress; Sql Server can make use of a great deal of physical memory in a transient fashion.
You can limit the memory usage. In Sql Server Management Studio, right-click on the server node and select Properties. Memory is the 2nd page, and you can set a minimum and maximum there. This is the same in Sql Server 2005 and Sql Server 2008. You'll need the serveradmin role or above to manage this setting, if I recall correctly.