I have installed Fedora Core 3 on Pentium 200 MHz computers. It will run in 96 MB of RAM, but there's an awful lot of swapping, so I'd say 128 MB is a practical minimum. There are Linux compatible IDE controller cards that solve any BIOS problems with too big disks. Pentium 233 MHz CPUs, sticks of 128 MB RAM, and IDE controllers are common on internet auction sites.
For well under $30 and a spare hard drive, you could easily convert your old PC into a SAMBA file server. Once it is working, it would appear to your XP computer to be an extra disk drive. To do a similar thing in Linux, you will want to study the mount command. Old PCs consume less electricity (just look at the heatsinks) and if all it is doing is serving files, it really doesn't need much CPU power. A separate file server is more secure than sharing files directly from a client PC, especially one running Windows.
Rather than keep my MP3 collection on individual computers, I keep it on my file server where any PC on my home network can play it. It's better than the landfill....