So I had another extra hard drive so I though "You know, I think Ill give Vista on this ThinkPad another go" but this time, I remembered my full Business license. So I installed, booted up, installed Office 07 and all the updates for the OS. I'm happy to report, that it runs at least twice as fast as just upgrading from XP to Home Premium. I'm sure with 2gb of ram, it would run very nicely.
However, I hear amazing things about Windows 7 (although I don't like the new taskbar) but appearantly its performance is very good. I think I will pick Professional up for my birthday along with some more ram.

(It's the 26th by the way)
The point is though, do not use upgrade media. It's not worth the savings to loose tons of performance.