One of my laptops is a Compaq Armada E500 (PIII 500 w/128MB RAM) running XP Pro & Office XP Pro. It runs great - BUT, I've done a lot of tweaking and stripping down of the OS services, the performance options are pared down to just the XP GUI and I do not typically run more than one (sometimes two) programs at the same time. (Word/Excel, Access/WMP, IE6/WMP etc.). My tech has an identical laptop but is running 2000 Pro & same apps. It does run a bit faster opening/closing apps and such, but not so much that it's troublesome. Video playback appears identical.
Windows 2000 Pro would run a little faster, but not fast enough of a difference for me to trade off the functionality that I do make use of in XP. Personal preference, including "nice to have" vs "need to have" = what you're willing to live with.
Straight outta the box w/no tweakage & no functionality requirements = 2000 Professional w/out question. XP really should have a minimum of 256MB RAM for full on operation, but 192MB will likely do you just fine if you find you just have to have XP AND are willing to do some tweaking.