I've run across similar situations in the past, due to the area where I live, which is much like a huge retirement village.
Things you should consider (most of which have already occurred to you, I'm sure, but I'll belabor the point ...):
What is your assessment of his current skill level? Is he interested in using a newer OS, or would he prefer working with something familiar? Could he, IYO, handle using something new, or would this be an additional burden upon him (and you) in order to teach him aspects of the newer OS so that he can use it comfortably?
Many of my customers are elderly, and some of them only buy the latest and greatest so they can boast about the computer to their friends at one of the area's larger computer clubs, which is hosted by a Senior Citizens center. It's a status symbol. (Which means that many of the machines just become expensive dust-catchers.) But, unfortunately, this is sometimes a problem, as while a few of these guys are extremely knowledgeable, and worked actively with systems back in the '70's and early 80's, modern operating systems can throw them for a loop. OS's have progressed considerably since DOS, and age can play a real factor in a user's ability to easily accept change.
Does your customer fit into this category, in terms of his social interaction? How well do you believe he can take in new information, without becoming frustrated and/or angry?
If he would really like to use WinXP, I'd suggest that you recommend a higher amount of memory ... if possible, of course. (The quality of Kingston ValueRAM is usually pretty good, so that shouldn't be an issue.) If that's not feasible, and if his ability to handle the new OS is in doubt, I'd make a case for using Win98SE.
You'll have to make the call, and do your best to persuade him to use whatever is the best solution for his needs, based on your observations.
I gave dadinLaw(aged) the same rig, 1700+, 256M KVR,
but with w2k... He was familliar with w98, but kept killin it! Think he kept draggin stuff who knows where(???) when double clickin and movin it!!!
W2k was familliar interface, and he does well with it (Can't kill it).
Was going to go XP pro, and set it to clasic interface, but i didn't want to have to do the M$, mama may I thing, for reinstalls when he broke it!
(or have him ever deal with it)
W2k is doin OK, runs quickly with 256, and takes abuse well - SO FAR...
I know it wan't a choice, but it might be better thn 98 or XP...
I would go with WinXP Home for him, you can use the classic Windows configuration that he may be more familiar with, instead of the Telletubbie land look, and optimize it for performance. That will give you the restore feature if he messes something up, and if worse comes to worse the repair feature that can be accessed when booting. I have not yet had to reinstall my WinXP, since my first installation because of OP/SYS failure, I reinstalled it one time when I upgraded my system with a new M/B, NIC, CPU, RAM, and HDD, I either solved my problem with the restore feature, or the repair feature for a really bad problem. However I can't say that for Win2K, I had a total crash with the Win2k OP/SYS, (Not a Hardrive Failure), and lost all my DATA and couldn't recover it, that was the last time I used Win2K.
<b><font color=purple>Details, Details, Its all in the Details, If you need help, Don't leave out the Details.</font color=purple></b>
98SE has less overhead, and is perfectly stable when used with stable hardware. 256MB is pleanty for use under 98SE, and he'll probably never open and close enough programs to need any additional memory manager for it. Also, he probably already OWNS a legal copy of 98SE.
<font color=blue>Watts mean squat if you don't have quality!</font color=blue>