I used to run Damn Small Linux on a similar machine - P2, 128 MB of RAM, and it was quite snappy. I always use older, used desktops with Linux on them, it's cheap and works great. Right now I have Gentoo on an old Celeron (2,8 GHz, but it's pretty slow) with 1 GB of RAM and Ubuntu on a P4 (2 GHz, 768 MB of RAM).

The problem with old computers, as far as I see it, is that they do so little but use way too much electricity. I'd rather have a newer computer that runs twice as fast and uses say 20% more than an older one. But yeah, it's still better than having them go to waste