In the past, I've experienced odd memory consumption issues after upgrading OS X, due to older kernel extensions that were still being loaded. Some of the extensions were for applications that I was no longer using and had forgotten about. You might try listing out all the non apple kernel extensions, then try unloading them one by one to see if you experience any improvement in memory consumption.
To list what is loaded, type the following from a terminal shell:
kextstat | grep -v com.apple
So, each of the kernel extensions, will have a corresponding kext file, located in the default /System/Library/Extensions/.
Then, to unload a kernel extension, type the following:
sudo kextunload /System/Library/Extensions/<NAME_OF_KEXT_File.kext>
If you identify any extensions that are wonky, you then have a starting place to see if perhaps there is an updated version of the application that is more Lion friendly.
It is certainly possible to install 8GB of RAM on this model. You will need to check if you have the correct Boot ROM Version and install it if needed. Follow this guide.
You can learn what RAM to buy for your MacBook using System Profiler.
Best Answer
This guy explains it well http://www.chriswrites.com/what-is-virtual-memory-on-the-mac/