Why the option? Do some games require more memory? I was under the impression that the entire game is loaded into memory at the start, right? So the amount of memory should only matter if you get an error. Is that correct?
Can you tell during the memory test how much memory there is?
I don't think there are any Naomi games currently that need more than 256, but the option is available should the need arise. GD-ROM discs can store 1 gig, so more is possible.
Unfortunately, the Naomi service mode does not say how much memory is available.