Im using a celeron 500 w/256 on it right now. It is just a data storage box, and it works well (actually i just hooked this up yesterday) it isn't super fast, don't get me wrong. but the only thing i'm even gonna do with this box is play music and store data...it'll be more than sufficient for streaming data/movies/music off of it....i just can't have it doing any intense stuff, which it won't be. SO i think you'll be fine w/win2k provided you aren't going to do anything procesor intensive....
In short, As a router I think you'll be fine
Also, you mentioned your DSL isn't linux compatible...are you sure your ISP just doesn't want to support linux? That seems strange, because a *nix box is going to use the same protocols that a Win box will. Unless there is some special win only sofware on your comp. I'd def try nix first if possible...Good luck.
On a side note, JackMDS stated you might want bump the memory up to 512Mhz I think you mean, MB RAM, right?