I new XP was limited I thought it was limited to 4GB not 3 so that clears that up.
It is, that’s not really what’s happening. You’re limited to 4Gb, but some of that 4Gb is inaccessible due to other devices needing to use the same address space. It’s a quirk of the architecture.
Am I affecting perfromance by having 4GB installed should I remove 1GB, something in the depth of my brain says you have to install ram in pairs.
No. Again, this isn’t a short answer and is dependent on how your PC’s set up, but if you install DIMMs in pairs you may well be operating in “dual channel” mode, which is faster. This is unrelated to Windows or to your OP, but my advice is as before, leave it alone. (-: