Certain games might have trouble with >16 MB RAM, I know for example Space Hulk does.
2 MB GPU might have trouble with some Windows games, suggested 8 MB.
Windows XP isn't the best choice here, performance-wise, but I have a similar hardware platform running Win98 right in front of me, and it works flawlessly. Also, XP has trouble with a number of games that were made for 9x (Mechwarrior 2, Chaos Gate, Mechwarrior 3 are the examples I remember well, but IIRC there are a few more).
Myself, being in your position, I'd build a dedicated DOS machine and a dedicated 98 one, with a bit higher specs.
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