Why won't Windows 8.1 64 bit (MacBook Air) recognize all 1GB video memory? My 2011 MacBook Air has 8GB of RAM and Intel HD Graphics 4000 1024 MB

My Windows 8.1 partition (64 bit) doesn't recognize more than 128MB of video memory, causing graphics oriented programs to crash.

Is there some sort of driver update or anything I can do to fix this?

Windows is always kept updated.
Your MacBook Air has integrated graphics so the system memory (total RAM) is shared between the OS (traditional RAM) and integrated graphics (stuff that handles drawing pictures on the CPU, that needs some RAM to itself as well).

OS X dynamically partitions that amount of VRAM versus system RAM at any given time (per Apple). Windows likely doesn't have this function built-in, but it looks like there are a few ways to control it.