Welcome to LQ
As to your questions:
Q. Okay I want to boot Linux from a disc. What would be the best distro to use?
Knoppix, Ubuntu, any live cd distro would be fine
Q. Also, if I like Linux enough, will there be a way to dual-boot or boot from a disc with XP or ME/9x so I can still play games?
do a search of LQ, there are many many dual boot threads (and some Tutorials, too) - short answer is yes
Q. if I do dual boot, will it take up a lot of space?
when you decide on a distro, check with their homepage to see the system requirements - some need a few hundred megabytes, some need several gigabytes. It's hard to answer, but you shouldn't need more than, say, 6GB
Good luck with this.