I have got it working on similar specifications - a 1.5Ghz single core, 64 bit celeron, 1GB of memory and a 80GB hard drive.
It used about 20GB on the hard drive so your 40GB should be fine... I had half the amount of memory and it was fine, my CPU was probably slightly faster, I am guessing mine is newer as it is x64.
However, it didn't win any speed records. If you are happy with XP, keep with it. Windows 7 might make your pc feel fresher and newer, and there shouldn't be any problems, but if you want it to run as fast as a new pc, you will have to disable a lot of services and features (For example, your graphics probably do not support aero), by the time you have done that, there is little reason for upgrading.
If you have a spare external hard drive, it may be worth creating an image of your machine, then installing and seeing if you like 7. If you do - stick with it, if not, go back to the image.