Unused RAM in Android is wasted RAM. In some situations it can speed up loading of new apps, that's probably where the speed boost comes from. For most people, it's more preferable to use the RAM to cache apps in the background so you don't have to reload them every time, it defeats the purpose of a multitasking OS.
Correct, which is why its annoying me IHO clips apps around 250-230MB of free ram. I have tons of ram left but it simply will not keeps applications open.
To compare I can get Froyo to respect minfree values but IHO does what it wants in that regard.