You will find that Vista 64 is the OS of choice for gaming these days. There really are just a tiny number of oddball programs that won't run under 64. The days when this was a problem are over.
You can put 4 gig of ram in that rig and then install a 32 bit OS but you will be lucky to have 3 gig of usable RAM out of your 4, maybe as little as 2. Only way to use all 4 gig with XP or Vista will be a 64 bit version. This alone is reason enough to steer clear of 32 bit! Actually, since DDR 2 is so damn cheap you ought to go ahead and get 8.
XP is a good choice too. It's still the most universally compatible - but Vista is closing the gap on compatibility fast, it's 99% there, all relatively modern games run fine and at the same frame rates (Manhunter has some issues) and with Vista you are buying into the future with DX 10 and DX 11, plus the next version of Windows will use the same drivers as Vista so Vista will hold you in good stead for years to come.
Final verdict: Vista 64 and don't even think about it.
I avoided it until a hd camera, a hd vid card (dx10) and capping myself to 3gb of ram. it is time to evolve... I am not into the artsy stuff, it is the vids getting diarhea on good hardware...Xp is all done to me.
I have even yelled about it.