I'm not certain if this question has been answered or clarified before (I couldn't find one), so please inform me if there's been a similar discussion, and I will close this query.
The issue arises on a purely 32-bit platform (not a 32-bit mode on a 64-bit platform and without PAE), where the address space limitation is 4GB (probably less due to the 3GB user/1GB kernel split). Therefore, (memory 0 65536) will always fail to instantiate. I'm unsure if this is an exception allowed by the spec for 32-bit platforms.