If your running XP 512mp ram is about minimum for it to run halfway good. I personally would use 1GB of ram. I have a XP machine that I up graded from 1GB to 2 GB and really didn't see that much difference in speed, but I did have a lot more in reserve.
Its nothing to sneeze at! Lot better than some and lessor than others. I know a Pentium ll is not going to process the incoming data that fast. I a older 2.66 Ghz Celeron in one computer I use for back up and it gets the same as newer laptop.
You can use any ram you want in the DDR2 800 series up to your Max (8GB). The voltage will auto set in BIOS. Just make sure all the Memory is of the same type.
I had a problem similar with my Web Cam. I had to down load the drivers from Hercules for it to work and I even had the install disk. I also had problems with my wireless printer until I down loaded rhe Windows 7 drivers. By the way I running W7 too. I tell you whats weird is I didn't have the problem when I was using W7 RC1.