Well, actually Vista is not eating your RAM, it just have a different means of managing your memory. The new Vista uses a memory manager which is closer to that of Linux. Vista actually looks at your usage and cache applications and files which you used regularly so as to improve performance. This technology is called SuperFetch See http://www.codinghorror.com/blog/archives/000688.html
Vista is not all that bad. It had problems when first released, and most of these were down to driver issues. SP1 is out, and it resolves a load of the problems. We have an article about it on our blog HERE I would still suggest that you have 2Gb RAM to get the best out of it. RAM is at its cheapest for years at the moment, so now is a good time to overload with RAM anyway. You can turn a lot of the functionality and eye-candy off Vista, but this makes it look like XP, when it is actually much nicer.
Yes, you should definately put XP on it, because XP is faster than Vista, why would anybody want vista?
Sociable. *Vista runs faster than XP - it's just that your hardware isn't capable enough to have the full performance. *Vista's security is better than XP. I'm happy with Vista, been using PS, Ai, kind of applications and never really had any problem. Actually, there are some, but it's just like all other releases of OS. It gets better with later updates.
On an old PC I have laying about, it has basically the same spec as you and it runs home basic better than it ran XP! Give it a go, whats the worst that can happen?