It's because you cap the Java failsafe. It will allocate more as you go but Java VM will only allow so much to allocate as a failsafe (1gig x86, 2gig x64). Set your max and min.
Install 64 bit Java if you are on a 64 bit machine. Default Java install is x86 not matter your system.
Running as jar not exe. "C:\Program Files\Java\jre6\bin\java.exe" -Xmx2048M -Xms512M -jar "D:\Games\Minecraft.jar" <--My setup (64 bit), use your own paths. Just an example.
Just remember doing this will FORCE your system to allocate at least your min amount to Java and WILL not free it up for other use until the java app is closed. Perfectly fine if you have it to spare.
Win 7 allocates the RAM usage very well (Just make sure you have the correct version of Java instaled). This may help people running Windows XP or Linux.
Atm my Minecraft.exe is currently eating 661 with spikes of 900 MB of RAM with a 50 MB min start up.
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