They really are the same product. XP just has a tweaked UI and some extra bells & whistles that as you point out are not requirements for typical business users. As you probably know, don't even consider XP Home for business use; use Pro only.

XP is now at SP1; my experience at a number of client sites has been positive. As with W2K it pays big to get the installation correct up front - exact & updated hardware drivers, etc. If that's done, both products will basically never crash unless hardware fails.

If you're upgrading from 9x or Me either is an excellent choice. 256MB RAM will give sufficient headroom for all but the most demanding users; 128MB is not quite enough. There's no real reason to go to W2K instead of XP; the latter is IME just as stable, is newer (so will be supported longer) and the price is basically the same.

I'm a big believer in bare-metal OS installations (rather than upgrades) but if upgrading is required, XP handles it much better than W2K.

I seem to recall some early benchmarks that showed XP was significantly slower (~10 - 20 %) than W2K on some tests but I don't know if that has been subsequently addressed, or whether it will even be noticeable on modern hardware with sufficient RAM.