Can't say I have ever used Ubuntu/Xubuntu on a machine similar to yours, so I can't help you compare. I can only go by system requirements, where Xubuntu only needs 128 MB RAM as opposed to Kubuntu/Ubuntu which needs 256 MB RAM as minimum requirement.
you have 2 options for upgrading, either upgrade your existing installation, and upgrade the way 5.04 -> 5.10 -> 6.06 (as recommended by ubuntu), or download Xubuntu alternate cd (textmode installer) and do a new installation.
Downside is, as far as I can tell the problem with serial mice still persists. So you will still have to configure your mouse by hand. The upgrade/new installation will 'only' give you a newer system (including applications) and a less hardware hungry GUI. Your's to decide if you want to do it.
useful links:
https://help.ubuntu.com/community/DapperUpgradeshttp://www.xubuntu.org/get