I experienced this issue, and I have the following specs:
AMD Phenom x4
16GB RAM
ATI HD5670 1GB
I have found that adding command line options (via commandline.txt in my GTAIV folder) helps me with this issue.
I use the following:
-norestriction (Allows you to edit your graphics options without restriction)
-nomemrestrict (Removes restriction on the amount of memory GTAIV uses for video)
-availablevidmem 2.0 (Allows GTAIV to use system RAM as VRAM. Number is a multiplier, so 1.0 will use all of your VRAM, and 2.0 will use all of your VRAM, plus an additional amount of your system RAM equal to your VRAM)
-percentvidmem 100 (Specifies how much of the memory you set with the previous option that GTAIV is permitted to use)
To use these, just create a file called commandline.txt in your GTAIV (or EFLC) folder and paste the following inside:
-norestriction
-nomemrestrict
-availablevidmem 2.0
-percentvidmem 100
You can change the multiplier for the availablevidmem command to something that suits your system.
Hope this helps!