If you want to run a fairly demanding application like Sonar with many plug-ins or VST instruments, use at least 2GB of RAM. XP is fine, and uses less memory itself than an alternative MS operating system like Vista.
"Free" in the case of commercial software generally means a less-than-legal copy, if that was the situation we wouldn't be able to offer any assistance to support its use. There are a number of low cost alternatives, for example some people really like Cockos Software's Reaper
, it's very small and efficient, free to try out and not expensive if you like it. Or the British Computer Music
magazine gives away a decent sequencer and free plugins on its cover disk. And there are complete Linux distributions dedicated to production, like dyne:bolic
The Intel Core2 CPUs have a performance edge, but an Athlon 64 is quite acceptable for a DAW application. A 200GB 7200 rpm SATA hard drive will offer reasonable performance, although if you're going to do serious multi-track recording, its best to have a dedicated drive. If the recording drive has to break off to serve any other system purpose, you'll get lags & breakups as you've mentioned.
Your system has two Firewire ports, this could be useful as both an external drive and an external audio/MIDI interface could be run concurrently on Firewire if you wish. Firewire has advantages over USB in multimedia applications. If you want to use a more professional audio interface, they are often Firewire for this reason.
A quality audio interface will be provided with ASIO (Audio Streaming Input/Output) drivers to give high performance and low latency. Since ASIO drivers run as a Windows Service, setting the Performance characteristic of Windows to favour background services rather than programs usually works best.