Have you tried:
DLLBASING=OFF
near the top of your CONFIG.SYS? There is a slight performance hit (you might notice it if you are still using a 486SX), but it lets OS/2 make more efficient use of shared memory space.
Doug,
My problem seems to be a timing one. Even disabling HPFS completely or hiding HPFS partitions (removing drive letter) does not help. I get various 'out of memory errors' during boot in different places followed by TRAP 000e or TRAP 000d depending on sorting of config.sys. And/or dllbasing on/off and reming out netwstat.200 (?) or some other network related statements.
so seems yes.
Andi, don't forget to also set
PROCESSES because it also eats lots of memory in system arena, and because it doesn't seem you'd need to spawn 1024 processes. Then you should be able to increase
VIRTUALADDRESSLIMIT even more.
Although that won't help if you run out of low shared memory (which is always less than 512 MiB, no matter what you do), until you load the DLLs high.