how much ram can a peg 2 take
It depends a little on the board revision, if you use single or dual memory modules, models, etc.
http://www.powerdeveloper.org/forums/viewtopic.php?t=1301&postdays=0&postorder=asc&start=0If it's a rev 2B5 motherboard, it may take up to 2GB, if you use *paired* (identical) 1GB modules, check the linked thread for details. Older versions than 2B5 have problems with this. Neko is running 1GB on his 2B3 revision board. I haven't heard of anyone having problems with a single 512MB. Feel free to ask follow up questions in that thread, as chances are you will get a more clever answer there than here... ;-)
MorphOS runs with 128MB, but 256MB does really make a difference.
and is it ddr ?
Yes.