I have the same laptop as you, and I think it's great. Howver, I would suggest using windows 98SE, as it's less resource hungry. You might need XP for some things, but not for games at least (there are some games that need XP, but they won't run on the T20 anyway, as it's too slow).
When I upgraded my memory (from 128MB to 384MB, you should be fine with 256MB) a few days ago, I thought about reformatting and installing XP. I posted here at:
http://forum.thinkpads.com/viewtopic.php?t=20570
but the concensus, which I tended to agree with, was that XP wouldn't benefit me enough to compensate for the heavier resource drain of XP over 98SE. If you're using the laptop for business, then XP's stabler performance is more important to you than it's slower performance (plus with business software the speed is less important, especially since a word processor spends most of it's time idle, waiting for the user to make the next keypress), whereas for games, you need as much CPU runtime and free memory as possible. Plus with 98SE, you get DOS backwards compatibility, but not with XP.
By the way, there is one major (and very stupid) problem with the T20 that you should be aware of, or it could cost you dearly:
http://forum.thinkpads.com/viewtopic.php?t=7935
The CRC 0175 problem can aparently kill your motherboard (well, prevent it from ever booting up again). I've searched the WWW and the Yahoo! groups as well as this forum, but it seems like there's no way of preventing the bug, other than ensuring that you have a powered battery installed, as if the power totally goes when booting the T20 then the BIOS gets corrupted. If you boot from mains, and the mains power goes, then you need the working battery present for the T20 to fall back on.
I have no idea why the laptop needs to write to the BIOS during boot up, and regardless of that, when the laptop checks and find the CRC error, it should give you something like a:
"Press [F1] to rewrite BIOS with default settings" option", but instead you are locked out, and have to buy a new motherboard, just for one stupid BIOS corruption error. Ridiculous. If I'd have known about that, I migth well have not bothered buying a T20, and bought a different model or brand.
Anyway, apart from that, I have no complaints at all about the T20. It plays the games I like, it's great for reading text and viewing graphics, and it has a very good screen display (and thankfully works with an external mouse). I just wish it didn't have that STUPID, potentially fatal CRC problem.