That would depend on the JVM and the OS, which you have not specified... So probably nobody will answer your question.
FWIW, we (my company) run 700M heap, 128M perm gen, 32bit Sun/oracle 1.6.0_x JVMs on centOS 5.1, 64bit. No problems running quite a few of those on one 16gb ram box.
As Joshua wrote it depends to your OS and JVM.
So please post information about this.
I suppose you try a 32Bit JVM, for this 2GB is often the maximum.
The JVM's memory contains PermGen, ThreadStack, Heap and some more.
All together can not break the maximum.
If so try a 64Bit VM if your OS is a 64Bit system