You will be able to network windows 98 and win XP (i have done it). for the spec you have on your laptop, i think win98 is probably the best you will get. winXP requires a lot of memory which you havent got ( my desktop is currently using 200mb of my 512mb ddr). and the proc, although it meets minimum spec would be very slow.
20gig HD is ample for win98, leave virtual memory alone (let windows sort it out).
i have never used windows2000 so i cannot comment on it.