Older games and programs still benefit from L2 cache, but they typically will use less of it. For example, I tested a Celeron 366 @550mhz (128k full speed L2) vs a Pentium 3 Katmai 550mhz (512k half speed L2). In 1990s 3D games like Quake2, HalfLife, and Unreal the Celeron was slightly faster (NOT mopping the floor). In later games like Max Payne and NOLF the P3 was faster because the Celeron's measly 128k L2 cache was no longer adequate.
I also tested a Coppermine Celeron 800 with 128k L2 vs a Coppermine P3 800 with 256k L2, both full speed, 100mhz FSB. This was where mopping the floor happened, only not in Celeron's favor. Even in 1990s games like HalfLife, Unreal, Descent 3, Quake 3 - the P3 was easily 10-20% faster, and even a P3 running 100mhz slower was still pulling ahead of the Celeron. So yeah, L2 cache is pretty important for 3D games.
In your case I'd stick with the P4. For 1990s games both are overkill and the difference from 1.6 to 1.7 is negligible. There is no benefit from a smaller L2 cache if both are the same speed and architecture. Also the Willamette Celeron was infamous for terrible performance, so in no case would it be a good choice.
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