Your processor can handle the XP upgrade if you are planning on it
Honestly my p3 with 384mb runs great with XP (plus i tweaked the thing to death hehe)
My father's laptop has 2 sticks of 256, and uses windows 2000. One of the sticks "died" on him, and he is always complaining of how poor the speed is nowadays. I have been on it, and it really does seem to be a lot slower. Again, if you can get the ram at a cheap price, I personally would go for it. If you have the money, go for the upgrade to XP
while ur at it, just upgrade your whole system haha