I have a dual 1.4 Tualatin overclocked to 1.6 and 2GB of SDRAM a 4670 agp. Also a raid 0 in the system with modern HD's.
Windows 7 Ultimate is butter smooth. Aero and everything. I have flash acceleration from the video card and can play 720p HD just fine and doing lite multitasking behind it. 1080p still drops frames.
I also have a dual Pentium 2 450 overclocked to 570 and 768 MB of ram. That has an 9800 Pro and raid 0 with 76 GB raptors.
Windows 7 Pro works well on this. Must keep multitasking down. Still can play YouTube just 480p takes everything it has to play. The Ram does limit it but really not bad.
I find Windows 7 to work better on older hardware than XP in every case if you have the drivers for the system (that does include Microsoft drivers.)
For a smooth usable system the key is more than one core , enough memory and the fasted storage medium you can get.