Is Visual Studio 2008 a 32Bit Application?

Yes, Visual Studio is 32bit. To produce 64-bit code of your program it uses cross compiler (but there is already Beta 2 version of 64-bit tools).

It could use 3Gb of virtual memory on 32-bit OS (when OS loaded with increaseuserva switch or /3GB switch on WinXP), and 4Gb of virtual memory on 64-bit OS. It was built with LARGEADDRESSAWARE flag. You could check it by using dumpbin utility with /HEADERS switch. To get more information on virtual memory limits you could read this article by Mark Russinovich.

Yes, it is still 32-bit. Rico Mariani has an explanation of why.

As said above, Visual studio is 32-bit application. That's why IDE can use only 2BG of virtual memory. But exists solution that allows your VS use more memory. In this article explains how you can do that.