The gamecube will use all of it's texture cache in a game - that's why it's a cache. ( It's a bit like saying that Photoshop doesn't use all of the L2 cache on a pentium )
All textures are stored in memory, and when the drawing engine requests a texture a small block is pulled from mainmem into the cache where the individual texels can be read at fullspeed. If the same texels are used again they are already in cache so don't hit main memory. ( Exactly the same technique is used on the Xbox although the details aren't disclosed )