I built up a similar board from Gigabyte just to try running things on a Pentium 3 that don't make sense. Dual CPUs and 2GB RAM helped with that. So it was fine for screwing around awhile, but I didn't keep using it long.
For an actual practical system, yeah it might be redundant to run WinXP if you already have an AthlonXP for that.
You could use Win2k if you'll only be running things that do make sense on a Pentium 3. Win2k doesn't make it more useful, just more different.
The choice of video and sound cards could give it more distinct purpose from your later system. I notice it has a Universal AGP slot, so a Voodoo3/4/5 could work. I don't know if Voodoo works well on Win2K or XP though. I don't have any experience with them, I just perceive them as being focused on Win9x.
If your later system has a Creative EAX sound card, you could put an Aureal Vortex that supports A3D in this one. But that would also call for Win9x because I don't think they had Win2k drivers.
Alternatively you could use a sound card that has some decent chance of being usable in DOS. ISA is much better for that though, and unfortunately this board doesn't have that.
If you don't already have a Win98 system then this would be very powerful for that, and you could spec the whole build around that period of games. It's just unfortunate that you couldn't use the dual CPU in that case.
There are several (probably identical) caps that appear bulged, probably all of the caps of that type are faulty (even though a few still look normal they might also be bad and shouldn't be trusted).