Hi,
I have exactly the same computer but never tried XP for the low memory. However it is possible to make a decent computer out of it by installing Ububtu Netbook Remix 09.10 (this is the latest install).
The process is rather simple provided you have a free 1 GB USB stick.
You would have to download Unetbootin and the latest Ubuntu Netbook Remix iso.
Then start Unetbootin and in the top left selection field pick Ubuntu. in the ISO field you pick you iso and VERY IMPORTANT .... down in the middle you select the drive letter corresponding with the USB stick you have stuck in. Then let this programm run. It will take a couple of minutes. When done select "Close"
Most easy to these steps on a regular Windows machine....
After this is done your USB stick should be ready. Start the Aspire One with the USB stuck into a proper place and press F12. Then you select to boot from the USB.
Ubuntu should start now.
If you appreciate it .... press Install Now (don't know exact Buttonname)
Wireless networking is excellent !
Empathy allows chatting
Open Office will do all the paperstuff ....
Greetz,
Grinnalot