SDL MAME Wii is compiled with devkitPPC r19, so the emulator is already using MEM2 when MEM1 runs out, but even that's not enough for mainly two reasons.
1. The executable is big because MAME is a big program. Most of MEM1 is probably already taken up by executable code. I could make a lot of specialized builds to trim down on the size, but those won't solve issue 2...
2. MAME uses a lot of RAM. Even old games can easily top 64MB of RAM, because from what I gathered, MAME loads everything from the ROM into RAM at once when loading a ROM, and because MAME strives for accuracy, optimization isn't always there, especially in regards to RAM usage. (For example, Street Fighter can't load because during initialization it tries to allocate space for a 64MB bitmap, which I can only assume stores all of or a big chunk of the game's graphics.) Fixing this would require a major rewrite of a lot of MAME's core code, which I have neither the time nor the patience to do.