It depends on how fast your computer is. I'd say either use Win XP or Win 98, in general I'd only use win 98 on computers slower then 800mhz or less then 256mb ram. Win Me is the buggiest version of Windows there is, I would not ever recommend using it. If you do use Win Me, then don't come crying to us when your computer keeps crashing

As for front ends, I found Mame32 to be too small (text wise) and complicated looking for a cabinet to use. Thats why I'm using Mamewah, although there are plenty of front ends, all of them have their pluses and minuses so find the one right for you.
The way I shut my cabinet down is I hid a button on the back of the control panel, I then connected that button to the power switch on the PC. I set the PC to automatically shut down when the power button is pressed, and with the use of the smartstrip power strip, that button now turns everything on the cabinet on and off (monitor, speakers, marquee light, computer, etc.)