Thanks everyone.
At present Win7 Ultimate is installed on my netbook. Aero disabled. It is a bit sluggish.
Since majority thinks XP will perform better, I shall go with it.
Ps. My vendor says duel booting slows down the system. Is it so?
your vendor is wrong - there won't be any kind of slowdown. If you are interested you can customize xp installation for your needs ie removing unnecessary and unused components, slipstreaming hot fixes and service pack, a bunch of tiny little apps of your choice etc. You can bring down the installer size as low as 190MB. I'm using such custom configured xp and this is a lot faster.
Well if you want the snappy response of a desktop I doubt you would ever get that with a Netbook. Win7 is highly more optimized than XP. It uses more RAM --- HOLD ON, which is good, cause it keeps tasks ready and allocated to the buffer for quick execution. I doubt you will see performance increase with age old XP. Just keep Aero off. XP looks gross...!
even windows 7 with aero theme disabled looked like white washed ( IMO ) and XP's default Luna theme is not that great as well but Xp has some moded and official themes which are very nice but the aero theme of windows 7 is one of the best desktop interface - no doubt about that.
I'm using XP with classic theme anyway for more than a year and half and I think it's pretty good to look at.