You'll need more memory for 7 or 8. Something like this:
http://www.crucial.com/upgrade/Dell-memory/Inspiron+Desktops+/Inspiron+530s-upgrades.html
For basic operation, Win7 Starter with 2GB memory is a reasonable choice. It is missing some bells and whistles, but Starter is lean enough that it is adequately fast even on low-powered netbooks. Run the Windows 7 compatibility checker linked in a post above to make sure it will work with your system.
If you want to spend no money at all, and you can get by with a Firefox browser, Thunderbird email client, and LibreOffice word processing/spreadsheet/etc., the modern Linux operating systems (e.g. Ubuntu, Mint) are a hell of a lot easier to install and use than they used to be.
or run Linux from a USB drive and continue to enjoy XP offline
2 gig of RAM is plenty for Win8. Yesterday I just upgraded my wife's Netbook having 2 gig of RAM and a small Atom CPU from XP to Win 8 and it not only runs, but runs quite a bit peppier than with XP. Win8 is actually quite a nice, efficient OS despite what you may hear from the h8ers. Just boot directly to the desktop and don't use the tiles. The tiles are quite nice on touchscreens, but are a nuisance on desktops.