Can VMWARE Workstation read beyond 4GB memory in 32bit Windows host

Every factor of performance is affected. There is no (or minimal) graphical acceleration in a VM with most hypervisors (though some hypervisors have some support, which is either highly experimental or has fairly strict hardware requirements).

Level 1 hypervisors, like ESX, Hyper-V, Xen, KVM: Most things will be around 3-5% penalty.
Level 2 hypervisors, like VMware Workstation: Most things about 10-15%.

"GUI" means nothing. If it's a DOS style CLI you will never be able to notice the difference. If it's a heavily detailed 3D environment (like a game) the performance penalty might easily be 99% or worse.

Most typical desktop applications are light on resources, so you wouldn't really notice that it's running in a VM. We have users with thin clients connected to a Terminal Server VM and they don't notice unless they try to play full screen video or something similarly resource intensive.

ESX and VMware Workstation do not have the same virtualization engine, though they are similar in some respects.

If you're installing any OS in 2014 on modern hardware without 64-bit capabilities, you're making a bad design decision.

Even with the hardware RAM/CPU footprint you're describing for your VMware Workstation setup, it makes sense to utilize 64-bit versions of your operating system for forward compatibility, future-proofing and the very clear requirement you have for BtrFS 64-bit libraries.