Hey Kryspy. Good question, and one that I struggled with as well.
I started off by running Vista Ultimate, because I wanted all the functionality of my HiperGroup HiperMedia case, including the built in IR and VFD display. Pretty cool case with AMD chipset and ATU Express 1200 graphics.
http://www.hipergroup.com/products.php?l...27&pid=124
After installing and using the Atlantis Beta 2 release of XBMC for a while, meaning about 2 weeks, I quickly grew tired of all the Windows "crap" that was constantly processing in the background. By that I mean that the hard drive was always spinning and chugging on something for no apparent reason? What is so important that Windows is constantly reading/writing to the hard drive? Not only that, but I had periodic hangs and crashes of XBMC on Vista. I'm not blaming the code at all since I LOVE XBMC. I blame Windows.
That said, I took the Ubuntu 8.04 plunge. I'm mildly Linux savvy so I knew I could get around the expected hardware specific hurdles that I was sure to encounter. So after installing Ubuntu nearly 6 different times to get as close to perfect version of Ubuntu installed, I now have what I think is a solid XBMC system. Why did I install it so many times you ask? Well, I tried many many different combinations of ATI drivers before I got it down. I tried the restricted drivers, then the 8.10 Catalyst drivers from amd.com and both gave me issues like garbled fullscreen, tearing, and XBMC crashes. I finally found a post suggesting the EnvyNB drivers and that's what worked for me.
I plan on posting a complete tutorial soon that will detail my entire 3 day experience trying to get things just right with this Hipermedia box and Ubuntu. Everyone on this forum was extremely helpful with solving issues. There's such a wealth of knowledge that I tapped in to that I feel obligated to give back, even if just a little.
So that's the long winded answer to me saying, use Ubuntu!