I don't know where this "constant major system failures" thought came from, do not let his opinion influence your decision.
A friend of mine had a Compaq PII 233MHz or close to that (I don't remember the exact MHz), and he put Windows XP on the machine, and it ran just fine. Granted it was a bit on the slower side, but there were never any stability problems!! Used it primarily for internet and word processing, viewed the occasional video file (although choppy no matter which OS you have with that speed cpu).
Go ahead and upgrade, you'll love XP over 98.