If you fill your video memory with graphics, I suppose that would be a problem, because video memory, as far as I know, cannot be swapped. But the error message doesn't look like it's complaining about being out of memory. It looks like it's complaining that it can't find the image it's looking for in the EXE file. Did you give some graphic sheet a strange name? Or did something else maybe cause the compiling of the graphic sheet images to fail?
I can't tell much just from looking at the csproj file. That's just a list of files in your project (you can see for yourself in notepad). But the file named Project.resources seems like it would be the source of the problem... that should get compiled into Project.resx and then linked into the EXE file, and there might be some problem there -- is that file huge (hundreds of MB)? That file should contain all your graphic sheet images.
The images are saved by the .NET framework, so I didn't tell it what format to use, just "PNG" and the rest are defaults I guess. DPI doesn't really matter because we're dealing with fixed numbers of pixels, not inches in SGDK2. So the DPI setting will only determine how large to display the image in applications that measure things in inches, it doesn't affect the number of pixels in the image (as far as SGDK2 is concerned), I think.
Images are exported in 32 bits to support 8-bits for each of R, G, B and A. I don't think anything less is advisable or necessary because PNG compresses well, and it all gets decompressed into 32 bits in video memory anyway.