My personal choice would be for Win98SE - it is very stable if you have current drivers for your hardware, reasonably secure for net access, assuming you have the current Windows updates, a decent personal firewall, and an AV scanner.
It also has excellent games support (better than Win2k, and far, far, superior to any flavour of *nix).
If you upgrade your memory in the future, Windows98 will use it - the base OS only uses the first 128Mb as far as I know (but given that it will work quite happily with 32Mb this isn't a problem). The rest of the memory is used either by applications, or as a large disk cache, which speeds things up considerably if you are running several applications at once.
This is significant if you want to use your PC to play games, as a game is an 'application', and will quite happily use 256Mb or so if it makes it run faster.
I think the comments about Win98 slowing down if you add more memory are a bit misleading, as this is only true if you use it as a server - and why on earth would you want to do that