Granted that is true xp requires more resources, but I don't think it's fair to give that system as an example when the true minimum requirements for xp is a 500mhz pc with 256 megs of ram (Don't you know the m$ sys req rule? You take the reccomend processor speed and add a half and double the ram req. )
Given the choice I'd always pick xp over 98, simply because some emulators run better in xp or only run in xp. You say you are only going to run mame now, but you might change your mind later down the road. Will you be willing to purchase xp and reinstall everything? Daphne doesn't run well in 98 and some emulators like chankast don't run in 98 at all. Also remember that the newest builds of mame allow the usage of directx-9, which will use your video card to do artwork effects. Dx9 support in 98 is shoddy (or maybe non-existant I was thinking dx 8 is the cut-off point).
Dos and linux aren't really choices if you don't have a lot of computer knowledge.
Btw, the whole advance cd thing... sure it sets everything up automatically, if you are using a pc monitor with a video card it recognizes. If you are using a tv, an arcade monitor or want to do anything special, however, it either out right doesn't work, or requires more tweaking than setting up advance mame.
Also dos just sucks on new systems as it doesn't (and more importantly dos mame doesn't) take advantage of your newer hardware.
Regardless of what many die-hard fans of alternative oses tell you, in this hobby dos and linux aren't as much choices as they are last resorts for machines that can't handle windows. Windows is just easier to deal with for beginners and gives you a lot more room for expansion.
I reccomend xp, but 98 should do ya as well.
Oh btw... if you want to get a deal on xp, you could be patient and wait for vista to come out. The price is sure to drop then.