Comparing WinXP vs i686 kernel+i386 apps is flawed. There appears to be an assumption in the Linux world that "the kernel is all that needs to be optimised -- the apps don't matter". I think this is an invalid asumption: the cpu spends much more time executing user space code. And it isn't just the apps, it is the X window system as well that needs to be compiled to the target arch. (I'm guessing, the graphics card driver you had was probably an appropriately compiled binary?)
This is definately an area that I think a lot of distros could improve on. I mean who is realistically going to install and run Fedora on anything less than a i586 class CPU. All the stock packages should be compiled for i586 or better IMO.
Your comparison was of WinXP running on a 500 mhz i686 and a Unix-like system running on a 500 mhz i386 (except for the tiny kernel). Perhaps you could test another distribution, say Yoper.
Something that should also be taken into account is that GCC is far from the best optimising C/C++ compiler out there. The Intel and Microsoft compilers are probably able to squeeze in the order of 20-30% more performance out of some code. If the marketing is to be believed at least. I would estimate (without any emperical data) that they probably produce executables that are 10% faster overall.
Unfortunately, many reviews have the kernel/app compilation targets you assume. I suppose given the default binaries from many distributors, most people _are_ running X/Kde/OOo on old hardware. :-)
/sid.
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