2000 would run perfectly fine on that system... 256mb is more than enough to get it running smoothe. (I run a 300mhz with 384mb of ram, so trust me i know!)
I have Windows XP installed on my PII PC w/ 384MB RAM, it runs a little slow, it's faster than I though it would be.
Linux is only free if you download it, obviously he can't download it off the internet w/o a working PC. I checked to see the prices on some of the CDs they ship to you and it's like $30 or more for selected Linux OSes. I'm not sure about all of them though.
yea some of our school micron peice of shits are 700 MHz and probably 256MB running 2000 pro so i'm sure that it'll do just fine, but if u do alot of multi-taskin like photoshop, dreamweaver, fireworks, and a few IE windows expect 2 wait a little lol, i do it alot of the school computers and the slow down a bit