<p>I have a relatively powerful dev workstation - 8 cores and 3 Gig of Ram. However, Visual Studio 2008 does not seem to take full advantage, especially during large builds. 
Are there any tweaks to be performed on XP VM settings etc to increase performance? I remember back in the bad old days that out of the box windows does not take best advantage of machines with lots of memory, is this still the case?</p>

<p>PS assume I can make no hardware changes</p>

The biggest issue I usually have when working in large projects aren't cpu or memory, but the hard drive. Get several HD's on different channels (or use SCSI for best performance) and put the output files, intermediate files, temp folder on 3 different HD's. That should make a big difference.
I know you said no hardware changes, but since you didn't write what type of HD setup you had, I just wanted to mention this.
VS will not be able to use all your 8 cpu's efficiently unless you have a really fast HD setup.