There's absolutely nothing wrong with XP... that's my recommendation if you have a key for it. Otherwise, I'd go with a lightweight linux distro.
Personally, I've run Windows 7 on a system with 2gb of RAM and it was mostly fine. I wouldn't pay for a key to run a new OS on a system with only 1gb of RAM. If you don't have a key lying around, I'd use linux. Get another gig of RAM, and then maybe upgrade to 8.1.