That will work fine in dual channel as long as you put the ram in the corresponding sockets.
If you already have 2x512MB go for the additional 2x1GB upgrade.
If you have 2x1GB just spend a couple of dollars more and get 2x1GB instead of 2x512MB, there's very little difference in cost.
If this is a new build, just go for 2x2GB (can be as cheap as $70 for a pair of 2GB DDR2-800 sticks).
XP will only see/use 3.2GB but it will run nice and smooth and you will be ready for a 64-bit OS if you decide to upgrade.