Yes, MorphOS can only use memory which has been set up by the OpenFirmware, and only 128MB VMem are supported by it.
Graphic cards with 256 MB or more memory are just a waste of energy.
The system memory of 128MB is quite ok. I can do anything with it. FTP Server, SVN Server, Audio Player, Video Player, play my favorite MAME Games, Surf the Web, EMail, IDE, even play Quake 1 and 2 and much more.
Its hard to say what isn't possible with this tiny system. You can even run Blender on it. Just a few things need to much memory, but thats a known fact. And the CPU is not the fastest, so for rendering movies its not the optimal choice.
With linux the system is unsuable in my opinion. Just for those who didn't know/try MorphOS. With the Efika you can run more than one application. e.g. IDE, EMail client, music player and servers together using a transparent desktop with all its features without running out of memory and more important with out any use of virtual memory.
