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I mainly use it for internet, wavesplitting some radio shows and making CDs from those to listen to in the car, Excel, Word, and mIRC.
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I recently purchased a Dell XPS laptop for ~$1400 with Core2, 2 GB of Ram and Vista Premium. Overall, the laptop works quite well and there isn't a lot of lag. Dell also sells Windows XP solutions and you could always get a cheaper machine and run Linux on it (Ubuntu, etc.). If you decide to go with Vista, the critical hardware elements are 2+ cores, 2+ GB of RAM, and a video card (anything with DirectX capabilities). The Aero desktop (in Vista) uses DirectX acceleration ... if you don't have a video card it will bog down your processor. Alternatively you can turn off all the pretty features and Vista will zip along.
In terms of software and hardware compatibility, I have been running Vista on 2 machines at home and compatibility has never been -better-. With XP I had to hunt down all kinds of drivers... when I installed Vista it found everything (same hardware) and installed everything automatically. People also complain about the increased security in Vista (lots of pop-ups when you are performing administrator functions). IMO the extra security is worth the inconvenience.
Finally, 32b Vista will only take advantage of 3GB worth of memory (so don't get 4GB). Stay away from 64b Vista... there is no reason for you to get it given your needs.