OEM XP Pro would be fine look at the "sticky" in the Windows and Applications thread fr details of where to ring to inform Microsoft .
You will have to re-install all yopur programs when doing a fresh OS install , its a good time to do some spring cleaning . I would partition your C drive into 2 x 40 Gb partitions . Also I would personaly split the D drive up into 2 or 3 partitions aswell .
The reason for splitting your C drive is that if you get a corupt OS at some time you can re-install the OS and programs but leave your data intact . This does not help of course if your HDD fails , its always good to keep backups .
Almost anything you upgrade to will be faster than your present set up .
Actually thats quite a good system you have , just a bit dated and slowish .
I like AMD so I'd suggest a AM2 Dual Core processor if you can get one of the 65w low energy ones that would save you some loot in running costs and heat output . AM2 Dual Core not the single core ones , but the single core ones are still pretty fast .
Here in the UK I can get for example ,
CPU
http://www.ebuyer.com/search/?strSe...ntCatID=230&intSubcatUID=1960&bolShowAll=true
Mobo
http://www.ebuyer.com/search/?strSe...ntCatID=222&intSubcatUID=1953&bolShowAll=true
Memory
http://www.ebuyer.com/search/?strSe...&intCatID=3&intSubcatUID=2051&bolShowAll=true
You can go with Intel but I think for the sort of money you are looking to spend AMD will give you more bang for your buck .
Don't forget that you will probably have to buy a new PSU as a stable and quality psu is a must have to keep your system stable and safe . This link will help you sort out your power requirements ,
http://www.extreme.outervision.com/psucalculatorlite.jsp
As to a case if your on a tight budget why not get an old case thats being thrown away .Scavenge some fans from old psus , cases, cpu heatsinks etc etc . Make sure your mobo and parts will fit in it . Cut lots of holes in it for fans and with a quick lick of paint you'll have a unique case for next to nothing .
I'm not really familiar with Intel but this was a very good review of the Intel pentium E 2140 CPU and sees to be a very good budget cpu .
http://www.custompc.co.uk/news/119011/intel-pentium-e2140-review---core-2-for-50/page2.html
A quick search for prices shows these results,
http://www.shopbot.com.au/p-57499-1601941.html
So now you have something to chew over .