I'd like for her to have Windows XP.
For that price you can discount a Mac, which would have gotten you OS X plus the ability to run MS Office, and not have her worry so much about viruses, etc., and the need to run so many memory-hogging programs to keep her protected.
I don't know systems down in that range, but one important thing to think about is memory. The system will have an integrated graphics chipset which will suck up your main memory. In addition, she'll have her antivirus, spyware and other utilities running, and they take up memory. So make sure it has at least 512 MB RAM (preferably more), and skimp in other areas if necessary to get that memory.