I'm in agreement with TheMajor on this. I've seen his machine and it works.
As long as you configure XP to not be all facy you can run this on his machine spec.
As to XP or win2k, Xp does have more active processes at the base level then Win2k does. Win2k can run on a slower system and process a bit better then XP im my opinion, but you do loose the functionality that XP has.
There are a lot of options in how you configure a system to make it run better, and your specs are not at all the problem.
Clean up the OS, dump the extra crap from the system tasktray and extra processes you don't need. It's pretty simple from there.