I dont know about people but personally I am fine with Windows 7 on that netbook. 2 gb is the recommended minimum for Windows 7 so you're fine. As for OS, all Windows 7 editions have the same hardware requirements, the main question when it comes to netbooks is whether Windows 7 (starter) or XP.
There are pros and cons of using either but I would go for Windows 7- better driver
support, continuing MS support by way of updates (remember xp support is set to be phased out) etc. Some folks have reported better battery life with xp but thats not universal and in any case depends on usage pattern.