Your system is capable of running both Win2k and WinXp. But I would suggest you install Win2k instead of WinXP. The reason is you only got 160MB RAM. The sweet spot for Win2k is 256MB RAM (160MB should be ok); while running WinXP, you should have more then 256MB RAM. Your HD is only 10G, as long as you don't set it up for more then 1 user(or adminstrator), you should have around 8G of HD storage after install.
Also I must warn you about WinXp with your set up. Some AMD (k6-2 or Athlon) system, might not shut down properly. The system wouldn't power off (it will hang @ Windows is shutting the PC off). So as for a more stable, better and more mature drivers, I would suggest Win2K.