Stability is better with XP, but it depends on what you run. I run webcam programs that eventually grind XP into the ground (first the mouse stops working, then windows won't open, finally nothing works). I've never run them on 98SE but the results would probably be the same. If all you do is browse using a relatively safe browser like Mozilla, then you won't have stability issues. Speaking of browsing, no browser is absolutely safe on any version of windows, but if you practice safe browsing you won't get zinged or zapped on either OS.
Finally if you have kids who are going to use this PC, go with XP.
I would also note that what Microsoft calls "permanent" validation isn't permanent. Once you change your baseline hardware enough (e.g. replace graphics card and CD drive) then your system will be considered "different" enough by the validation tool to require revalidation. Then WGA will start phoning home and nagging about validation and you will be restricted from certain types of MS downloads. Ultimately you will have to revalidate just to run certain programs (although many like the latest IE, might be avoidable by using a safer browser). Then ultimately, who knows when, they will simply "no longer support" or revalidate XP.
For the record I mostly use Win2K and linux although I have a laptop that came with XP.