Should I upgrade to Windows XP from Windows 98 and what to expect if so

Greetings experts,

I have an IBM Aptiva machine that I bought in 1999.  It's a PIII 500Mhz machine with 256Megs of RAM.  I took out the original harddrive (which was only 17 Gigs) and it now has a 120Gig harddrive in it partitioned to C and D.  It also has a DVDROM and CDRW drive, both of which came with the machine.  Onboard sound.  I think it had onboard video that a friend of mine disable for me and now it has a GEForce2 64Meg video card in it.  I've also added a 5-port USB hub (it came with two USB 1.1 slots) and I have a printer, scanner, cordless optical mouse, 2 game controllers and a 160Gig external Western Digital harddrive hooked up to it.  I use a USB thumbdrive sometimes to get files on and off of it.  I have GameDrive Pro, which is one of those Virtual CD programs that saves you from having to dig through your CD library every time you want to play a game.  Lastly, I have a DSL modem running through a wireless router which is wired to this PC and provides wireless internet to 2 of my laptops elsewhere in the house.

It's had Windows 98SE on it since 1999, and to make a long story short it's to the point where for about 10 tries it wouldn't boot up, and on the 11th try it booted up and gave me the option to restore the last saved successful registry and now it actually boots, but I can't connect to the internet and half of the games I've installed don't work and can't even be UNinstalled (probably because they weren't in that successful copy of the registry).  I think the reason I can't connect to the internet is because one of my spyware scanners thought it found a virus in one of the DLLs that I deleted, but shouldn't have.

Anyway, I've been tossing around the idea of installing Windows XP on this machine.  What I'm *thinking* is that even though this is an older machine, Windows XP will be able to:

1.  Better handle the oodles of hardware I have plugged into it.  
2.  Solve the problem of not being able to connect to the internet (I tried reinstalling Windows 98SE and it didn't help - I'm hoping that going up to XP will give the computer amnesia that 98 was ever on it and set itself up properly to connect to the internet)
3.  Be friendlier about networking this main PC with my two laptops.  I've never tried it but I've heard that with Windows XP it's really easy to set up a wireless "network".  It's a real pain every time I want to print out a file from one of my laptops to have to put it on a thumbdrive and put it on the main PC - the 3 computers are all using the same DSL connection, so I should be able to access the harddrives of the other 2 machines and print to printers attaches to the other two.  That should be easier with Windows XP on all 3 machines I'd expect.

So here are my questions:  
1.  Is this computer too old to think it could meaningfully run Windows XP?  
2.  If not, will it accomplish the 3 things I list above significantly better than Windows 98?  
3.  If I decide to go to the store and buy a copy of Windows XP Home Edition, what are some of the things I should be ready for when I pop it in my CD drive and go to install it?
4.  Is it easier or even possible to give the PC total amnesia that 98 was ever on it, completely removing 98 and starting over with XP?

Thanks buckets!
Joe