With 1GB of RAM I'd recommend XP any day - while 7 is a lot better than Vista in the memory requirement footprint you're still sitting right on the bottom end of the minimum requirements, and for such systems my experience is that XP will be far snappier in terms of everyday usage. Some people on here seem to advocate 7 for just about every system out there now, but I still stick by my decision that running XP well above its minimum requirements gives a better experience than running 7 on the lowest spec hardware you can get away with.
If you can upgrade the memory to 2GB or so however and the graphics card can cope, 7 should be fine - that processor is more than capable. If you just want to run it as is though, I recommend XP as the way to go.