There is an interesting discussion here: http://social.msdn.microsoft.com/Forums/en-US/vcgeneral/thread/307d658a-f677-40f2-bdef-e6352b0bfe9e/ My understanding of this thread is that freeing small allocations are not reflected in Private Bytes or Working Set.
Long story short:
if I call
p=malloc(1000);
free(p);
then the Private Bytes reflect only the allocation, not the deallocation.
if I call
p=malloc(>512k);
free(p);
then the Private Bytes correctly reflect the allocation and the deallocation.