Hi Meghiddo,
I can't really make a comparison for you of Vista vs. XP for online gaming, as I have not yet installed and used Vista. The only general thing I can tell you, as far as gaming is concerned, is that Vista supports DirectX10 and XP does not.
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Is it as simple as just putting the CD in the drive and following the instructions or is there more to it?
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With the latest OSes, basically yes. And there are numerous online tutorials for installing XP and Vista. I look at it not only in terms of the money you will save, but the knowledge and experience you will gain by installing the OS on your own. Sure, it's handier, perhaps, to have the OS pre-installed, but if some time down the road something goes awry that requires you to do a reformat/reinstall, you'll end up having to learn how to do it anyway.....and you'll wish that you had taken the time to have learned it prior to this occurring.
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Last, what is the difference between the 32 bit and 64 bit versions of the OS?
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Check these out:
Overview of Windows XP Professional x64 Edition
Windows Vista 64-bit Computing