I found a similar machine, although it was my brother who was turfing it, and it was kind of in his cupboard. 700Mhz and 128M RAM.
Anyway, I got it home and a similar thing happened, where the hard drive would just lock up on occasion.
When I opened it up, I found that the problem was a loose connection on the motherboard. Once I pushed all the cables in nice and snug, it ran fine, even using XP.
I've since bought a new hard drive and added 128 RAM and this computer is my new type writer (used for Word, net, email, etc). My good machine is now solely for games. They run faster when you take all the MS crap out of them (Office etc.)
My advice. Check all the connections. Try a spare HD in the machine if you can get your hands on 1 and see if the problems persist.