Hi Mark,
I have only a little more (6 GB RAM, intel i5 3.0GHz) and no problem at all with large datasets (You've helped me in the very first steps, weeks ago). I noticed others have said you should have no problems with your machine and your not so large dataset and I don't know if you have already got the answer you were looking for. But when I downloaded the ArcHydro in the ESRI ftp site you referred to me, I got some reference documents there. There's an excellent article from Djokic 2008 (he has more recently evaluated the ArcGIS 10 with ArcHydro 2.xxx; seems to be an ESRI's expert in ArcHydro). The article, "Comprehensive Terrain Preporcessing Using Arc Hydro Tools", the best you could get on the subjet, has a good introduction about hardware requirements and some tips on how to deal with memory limits. For example, "For most common computers that can run ArcGIS software reasonably well, DEMs bigger than 20,000 by 20,000 cells will cause problems and potentially produce uncertain results"; and also "HKEY_LOCAL_MACHINE\SOFTWARE\ESRI\Raster\Preferences\grid.max_table_range contains the maximum number of records that are allowed for creation of VAT (STA) for a grid. The default is 65.536. When processing large DEM, that number might be too small and the function will fail (especially when performing fill sinks operation). Increasing that number (e.g. to 1.000.000) might fix a problem." Maybe I'm not telling anything new, but I'm answering your thread just in case this article can be of any help to you and others!
Fernando Cabral
Posdoc fellow at Université du Québec en Outaouais