The 1.5GB limitation came from the operating system (OS 9) itself, not any kind of physical limitation of the computer. You could actually install 2.0GB of RAM under OS 9, but it would only ever "see" 1.5GB at any one time.
Mac OS X, because it manages memory much differently from OS 9, is able to take advantage of memory quantities much higher than 1.5GB. Like bobw, said, should be no problem getting OS X to recognize all 2.0GB (512MB x 4).