"Darkstalker - I have seen the same cable, although I didn't think it necessary to bring up SP/DIF in here, seeing as the OP didn't even know what a Svideo cable was"
Yea, the only reason I brought it up is it is usually a yellow-ended cable...
Back on topic...
The only real reason to use S-Video is for the OS clarity or other non-MAME apps because it won't make a lick of difference in MAME since it is such a lower resolution. If you are using DOS or Linux in CLI, even the OS doesn't matter.
If you REALLY want better video quality, you are better off using a computer monitor since the dot pitch on a PC is much better than TV's you'd stick in a MAME cabinet anyways.
generic_eric hit the nail on the head. If you want S-Video, your TV has to have S-Video on it. The only reason to want/need S-Video is a GUI-based OS (Windows looks REALLY fuzzy using analog video), or you plan on running apps like a DVD player.
If you don't want/need S-Video, you can get a converter from S-Video to Composite (Analog) if that is your only video-out option, or use your PC's composite video output jack. Just remember you are losing the quality of S-Video when you convert it, and it's always better to run with the correct signal type from the start instead of changing it.
"How much quality difference would the desktop be if it was svideo?"
HUGE difference. Still not as good as a PC monitor, but you can make out smaller text (Like desktop icon labels) without going cross-eyed with eye strain. For MAME you won't see much, if any, improvement.