Other option is installing Linux OS to that Pentium 4 for free, however you would be cutting ties with 99% of the Windows based applications and while Wine works ok in some situations to run software for Windows under Linux, it fails in other areas.
I have a Pentium 4 2.4Ghz with 1GB RAM running Linux Mint 17.1 KDE and it runs it fine on a 40GB IDE HDD. Paired with an ok video card such as a GeForce 6200 AGP 8x with 256MB VRam, I am able to play videos on youtube with no problems, and the OS is very secure. For microsoft office needs I use Libra Office which is free and it can open and edit and save files in microsoft formats for others with MS Office to be able to open etc.
If you didnt want to spend any money but wanted to have both Windows XP and Linux so that you could run XP for older applications or newer applications that support XP and Pentium 4 CPU, you could also always go with the Dual Boot Installation path. To do this though its best to perform a clean install of Windows XP and leave a portion of the Hard Drive such as 20GB Free when making the initial partition for XP. Then install XP first, and then install Linux OS of choice such as Mint 17.1 second and chose the dual boot installation option. This will install a boot manager so that at boot you would have a choice of Windows XP or Linux OS The Linux install would create partitions in the 20GB space. You could continue to then use this older computer securely when on the Linux OS, and for legacy support with software and games on XP for mostly offline use.
Just as others stated here a refurb system that is more powerful than what you have can be acquired very inexpensively. I just wanted to through this info out there about Linux in case you dont want to spend any money but still want to use this system instead.
Others who have a certain level of dedication to older hardware have also upgraded to Vista from XP instead of buying 7 or 8/8.1. I was able to get a unopened oem Vista Disc with COA for $35 off ebay, and your system would be covered until 4/11/2017 for security patches etc from Microsoft.
http://windows.microsoft.com/en-us/windows/lifecycleLastly while putting any money into this system is by many a waste, I have been known myself to buy cheap upgrades for systems like this on ebay in which you could get a better CPU for it for less than $20. If your motherboard supported the HT Pentium 4, you might be able to stuff one of those in there for less than $20 and get better performance. However the performance gain is by far not anything like a new computer, and a $100 refurb with Windows 7 and a Core 2 Duo CPU for example would be way more powerful than a Pentium 4 HT CPU. I have bought these HT CPU's though to max out old systems cheaply, while the HT CPU might have cost someone a mint back in the day, they are in low demand and the price tag of $9.99 for my last one with free shipping for a Pentium 4 HT 3.00Ghz socket 478 for desktop not mobile CPU reflects that. The HT (Prescott) CPU has like 125 million transistors and a virtual core that acts like a dual-core to Windows even though not a true dual-core, but better than a similar aged single core. Your 2.66Ghz Pentium 4 (Northwood) has 55 million transistors and only a single core without HT. Performance wise with Windows XP the 3.0Ghz HT will handle multimedia better and load applications faster than the 2.66Ghz as for the HT CPU has SSE3 instruction support while the 2.66Ghz is without SSE3 and only has up to SSE2 instruction support as well. If deciding to go this route for a cheap upgrade just make sure the CPU is not a mobile CPU and is a desktop version is socket 478 and be sure to get socket 478 or socket 775. I am thinking your system is probably socket 478 with the 2.66Ghz.
