For really large drawings I would recommend the 64-bit version of AutoCAD and an adequate workstation.

No, multiple cores are enabled by default. The error message indicates that there is simply not enough memory. Having 1GB more (with the /3GB switch) should help a lot.

A 12 meg drawing in my experience is not a "big" drawing. I've done "big" drawings, 50 - 60mb 3D drawings, on a simple Dell 1.6 ghz with 1 gig ram without any problem.

If you're saying you have Out of Memory errors when there is plenty of memory then IMHO your problem is probably an incompatibility issue in the hardware/software. This is especially likely since you have multiple users with the same problem. I'm assuming you've got muchos gigs of space on the hard drives so there's no Swap file issue here.

Your vid card is on the approved list so it's probably an issue between the operating system and your Autodesk install. What operating system are you using? Have you checked Autodesk for fixes or updates?

Sometimes you can have a "memory leak". I've seen early releases of AutoCAD versions leak memory. They'll start swallowing more and more RAM for no good reason until they max out the machine. Keep an eye on the RAM usage to see if that's what's going on. That should be addressed in a Service Pack for your ACAD version.

If it is a OS compatibility issue you may need direct help from Autodesk or Microsoft. You may need to reinstall everything or change your OS.

Compatibility issues are always less problem if you're using top flight equipment not hobby built or knock offs. With that ATI 3600 I'd guess this is a pretty solid machine but you have to consider whether the machine is the problem. Is this a major brand computer, Windows OS and a licensed ACAD or is it a "custom built" station and hot software? Is the P4 really Intel or something supposedly equivalent?

You have some investigating to do.