I would say that if you're not going to change much of it and it is cheap or free then sure, it will be 'fine' for an XP build. OEM PCs, and especially Dell, use proprietary cooling, motherboards, power supplies and possibly even GPU limitations. Also remember that the PSU in that will be engineered to be a cheap as possible whilst surviving a certain amount of time (which will be well overdue!).
A custom PC build with a retail rather than OEM motherboard and BIOS will allow you use modern (quiet and reliable) PSUs, easily swap out CPUs, upgrade the BIOS, possibly put in more RAM, maybe allow a greater range of GPUs, allow you to use a modern (quiet and reliable) PSU. ANd you can easily change bits of it.
I would say build a Windows 98 PC for very old disk games and a Windows 7 x86 PC for all other old games as Windows 7 has great compatibility (and if you're limited in budget, space or enthusiasm, the Windows 7 x86 can do double duty to be honest!). I say this as XP is young enough to be unexciting (for me) whilst also being very inferior to Windows 7. The same applies to S478 / P4 kit; they are not old and slow enough to be interesting and worth running with Winodws 98, but not fast enough to be bearable day to do. Also they're very loud as both GPUs and CPUs didn't have fan profiles back then!
I have a Core 2 Duo (any will do to be honest but I would go 7 or 8 series and entry level for noise and power reasons) on a basic 775 motherboard with a modern low power GPU (Nvidia 440) and 3GB of DDR2. All my old games run at 60fps 1080p, pretty much silently. I can use my big stash of SATA HDDs and DVD drives. It is so much more convenient that a P4 build, and S775 parts are dirt cheap!
I say this as someone who had that P2 build and made several P4 builds, all of which only lasted a few days before getting too fed up with them.
If you're into this sort of this you might want to check out the recent 
