On a 64-bit Windows machine with 12GB of RAM and 33GB of Virtual Memory (per Task Manager), I\'m able to run Java (1.6.0_03-b05) with an impossible -Xmx setting of 3.5TB but
At least with the Sun 64-bit VM 1.6.0_17 for Windows, ObjectStartArray::initialize will allocate 1 byte for each 512 bytes of heap on VM startup. Starting the VM with 35TB heap will cause the VM to allocate 70GB immediately and hence fail on your system.
The 32-bit VM (and so I suppose the 64-bit VM) from Sun does not take account for available physical memory when calculating the maximum heap, but is only limited by the 2GB addressable memory on Windows and Linux or 4GB on Solaris or possibly failing to allocate enough memory at startup for the management area.
If you think about it, checking the sanity of the max heap value against available physical memory does not make much sense. X GB of physical memory does not mean that X GB is available to the VM when required, it can just as well have been used by other processes, so the VM needs a way to cope with the situation that more heap is required than available from the OS anyway. If the VM is not broken, OutOfMemoryErrors are thrown if memory cannot be allocated from the OS, just as if the max heap size has been reached.