what are the specs?
he said he's redoing the mame cab so im assuming its' a newish computer.
xp is fine imo.. if it's a 64bit processor go for xp x64, also use a 64bit build of mame you'll get a small speed increase over the standard 32bit version.
95 is pretty old, the first version did'nt have USB support, the 2nd had a patch that could enable usb support, but it was'nt very good i dont think.. win98 supports usb out of the box, stay away from windows ME it sucks period.
personally i like windows 2000 (evolution of window NT line and XP is based on 2000)
it's easier on resources then XP but stable and has good usb support, most XP drivers will work with win2k.. personally i think 2000 was the best version of windows but they've long killed support for it.. this is'nt a big deal for a mame cabinet though.
if it's a old pc say 500mhz or less then a direct dos boot might be good, but driver support as was mentioned sucks.. especially for anything usb.
i'd probably go for 2000 or xp, this is especially true if you have mutli core processor although it is only a small increase in speed you can turn on multi thread rendering on and it will make sure of 2 cores.. also windows will beable to use the 2nd core to spread out the load.. making any background services or programs less of a problem for mame.. since mame can really only effectively use 1 core at a time the other can be used for everything else windows might wanna do without slowing mame down.
windows 9x/me has no mutli core support so even if you have a quad core processor only the first core will actually be used.
also there was a problem with windows 95 (maybe 98 also i dont remember) where if the computer was fast (back then) say 1ghz+ the system would crash they fixed it with a patch i think i never ran into the problem my self since anything over about 500 mhz always got loaded with 2000.