That is not really true. Windows XP is 9 years old at this point but with the 3 service packs is no longer even close to the orignal operating system that was released in 2001.
Windows 7 is just now approaching it's first year of release. It fixes many of the headaches of the older OS. You no longer have to go driver hunting for what seems like days to get all your devices to work. Also Windows 7 has DX11 support as opposed to Windows XP and DX9. If gaming is your first priority you sure want the newest DirectX.
Windows XP 64 bit also had many issues especially with drivers. Windows 7 has fixed those problems.......and since you need a 64bit OS to use more than 3.25GB of RAM it makes sense to use the newer Windows 7. Do not forget you will have to pay for XP as well. Why spend money on a 9 year old OS.
No you do not get Word. That is part of Office and a seperate purchase. If you do not have the money then I recommend OpenOffice.org. It will do almost everything that Microsoft Office will and it is free.http://www.openoffice.org/