Could not reserve enough space for object heap error

My server recently lags so I decided to increase the RAM Allocation but I get this error:

Error occurred during initialization of VM
Could not reserve enough space for object heap
Error: Could not create the Java Virtual Machine.
Error: A fatal exception has occurred. Program will exit.
Press any key to continue . . .

I know that I have more than enough RAM, 12 Gb of RAM and normally only 2Gb is used so there is plenty of space for server.

RAM Info:
RAM
Memory slots
Total memory slots4
Used memory slots4
Free memory slots0
Memory
TypeDDR3
Size12288 MBytes
Channels #Dual
DRAM Frequency500.0 MHz
CAS# Latency (CL)6 clocks
RAS# to CAS# Delay (tRCD)6 clocks
RAS# Precharge (tRP)6 clocks
Cycle Time (tRAS)15 clocks
Bank Cycle Time (tRC)20 clocks
Command Rate (CR)2T
Physical Memory
Memory Usage46 % (Im running the server)
Total Physical12 GB
Available Physical6.46 GB
Total Virtual12 GB
Available Virtual7.06 GB
SPD
Number Of SPD Modules4
Slot #1
Slot #2
Slot #3
Slot #4

Is there a fix or am I supposed to uninstall some programs?
I use Tuneup Utilities 2012 and I disabled all programs that causes system load, now I don't know what to do.

Any fix?

Oh also, when I updated my server to 1.3.1, in the server list my server takes longer to ping and im the host on my pc, I ping other servers faster. It also says 1 bar but its impossible as im the hoster.

Is it because of the update?

Crazeh bumping

Seriously, so I waste 6 GB of RAM o-o
Cause I used once 10 GB of RAM when rendering a video.

EDIT by Moderator: merged posts, please use the edit button instead of double posting.