Well, VF requires Win98SE so your comparison is really between Win98SE and WinXP.

Win98SE has lower overhead so it works better on "slower" systems. Also, many older analog capture devices work better with Windows 98.

WinXP has the advantage of not having a 4GB file limit when using NTFS. If you use FAT32 (like Win98SE does), you will have the same 4GB file limit. Also, WinXP is better with "high end" systems. For example, it supports more memory (Win98SE doesn't take advantage of more than 512MB of RAM) and dual processors.

Of course, some people say that WinXP is more stable than Win98SE but in my experience, this depends heavily on the quality of the drivers you use. Bad drivers can cause either operating system to blue screen all day.

If you already bought WinXP and have a "high end" system, go with XP.
If you don't already own Win XP, are happy with Win98SE or have a "slower" system, go with Win98SE.

<Edit>Saw your system specs in another post. If you go with XP, definitely go with more RAM (256 isn't enough). Your systems specs seem similar to a low end Dell. Did you recently buy the computer? If you did, didn't it come preinstalled with WinXP</Edit>