Tablets, like quite a lot of tech devices, do not show the full amount of RAM. My tablet has 256MB RAM and it only shows 198MB. The Motorola Xoom has a physical 1GB RAM...
Definitely doesn't sound correct. What is everyone using to check the RAM? I use Android System Info app (from the Market) and mine shows 719MB max with 344MB available. I have had mine on for a while so there are things running in the background.