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I'm still very new to this - only had my Axim for 1 day now but to try and answer your questions....
The Built-in storage reading is correct - it doesn't count the amount of space that the operating system is using.
As for the memory settings, you can install programs directly onto your SD card, which is probably a good idea if you are installing a lot of software (just select 'no' when asked to install to default directory and then you can choose the location). I would be tempted to allow more of the internal RAM for memory as opposed to program space, although I'm not sure how much of an impact on performance this can have.
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