I don't know, but you can find out easily. Run VirtualBox, create a VM, and start to run it (even if there's nothing to run). If it starts, you can virtualize.
However, if this is an old computer, I would seriously consider dual-booting instead of using a VM. The systems will run much faster.
If you dual-boot, that will give you nice fast system.
You certainly could. XP would run very fast on 4Gb. Many people prefer XP to Vista, but the problem is that XP will not be supported much longer, so Vista is probably a better idea.
Yes. Just do the usual updates. If you have broadband, it will take you an entire day (Microsoft's "clever" idea to do updates in many stages). Without broadband, it will take even longer.
Yes, indeed. I would simply go with the standard Microsoft Security Essentials, which works well and fast; it includes the firewall and anti-malware. You could go for other proprietary systems if you prefer, but I have found Security Essentials to do the job.
If you are running behind a router, that will give you extra protection.
If you decide to use a VM instead of dual-boot, once your Windows VM is set up to your satisfaction, snapshot it. That will allow you to regress quickly should it become infected.
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