Win 7 or XP for this old computer?
Windows 7 64-bit or 8.1 64-bit. Either will do.
You have the GPU requirement, RAM and CPU power for either.
Even if you didn't have the specs, I would say Win8.1 Update (as it's better for slower system). Windows XP should be considered an OS with 0 security. The OS is from 2001, and based on 1993 core. The Internet was not what it was. Microsoft said themselves the day XP was released, that they'll be scrapping XP, and restart from scratch for modern hardware (your specs is modern), and for security of the modern area. XP is like a dray wall with holes everywhere, like a crazy, and plastered above, then you make additional holes on that, and put more plaster on it, and now it's all cracked and chipping off, and alreayd has holes again. And now (well coming April) Microsoft pulls the plug on any support what so ever. The OS is beyond repair.
In addition, XP does not support:
-> AHCI natively meaning you dont' get enjoy NCQ form your HDD. It's a feature that boost HDD performance.
-> No multiple core support (works with multiple core, but doesn't take advantage of it, moves everything of itself to single core)
-> No support large amount of RAM (designed for 128MB and 256MB of RAM, it always acts as you are low in RAM, so it moves everything to pagefile, free space or not, slowing down your system experience)
and I can go on and on and on....
The only advantage of making a partition out of a HDD/SSD is making your re-install easier, if you set in Windows, to have your Document, Picture, etc, to your D:\ Partition (second partition), which you can do simply by right-clicking on each folder, go to Properties, then go under the Location tab. That simple.
So now when you need to re-install Windows, you don't need to worry about backing up your stuff. However, this must not be seen as backup solution. The HDD or SSD fails, both partition fails. This is just to make your life easier when it comes to re-install.
As personal data is usually the large part of your storage, I suggest to make C:\ for windows only, and D:\ for your programs, games, and personal data.

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