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Windows 7 x64 will work just fine on it. It runs better than XP for the most part on older systems. I have a couple of old school builds I have made on the cheap for people who need them with similar specs all of which perform just fine.
Hell my netbook runs 7 ultimate x64 with a dual core athlon 1.2ghz and X1270 without a hickup. I tried XP on it and while some things were faster for the most part windows 7 was way better.
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