The local vm.conf is overriden by the configuration on the shared storage,
but the bug with VM having 4 MB of RAM instead of 4 GB is already fixed:
Try upgrading the ovirt-hosted-engine-ha and ovirt-hosted-engine-setup packages on the ovirt-node.
Specifically, the fix is in ovirt-hosted-engine-ha version 2.1.9
# yum upgrade ovirt-hosted-engine-ha ovirt-hosted-engine-setup
I'm not sure if the version 2.1.9 is available in ovirt-4.1 repositories.
If not, you could install the ovirt-4.1-snapshot repositories on the ovirt-node:
The snapshot repository may be a little unstable, so I would recommend upgrading hosts to 4.2, when the engine is running.
Andrej