Vista will be fine if not better than XP for her needs forget about hard drive space used up that will be plentiful anyway as for slower, not really in the scheme of things. It will be easier for her to use, just ask my mother in law who just ought a new one and had used XP before, never very confident. She's fine with Vista and far less hassle asking me questions.
If you want Windows 7 you can download the work in progress version for them or somewhere.(it is basically Vista with a few extra things and a reworked interface). Noting your Mum would be interested in.
Anything in the budget range will be fine,
Though get her to try them out (if you can) and if it's not going to be moved then try and go for the 17" screens if you can squeeze it in to budget. They make it much easier to read the text.
I know you can do it for ~£450 and it's a nice laptop to boot (HP I think) sound is good, quick and has a new fandangled Blue-Ray player you Mum will never use
Else Dell or Samsung or always a good choice as per the review in magazines.
These cheaper netbooks will do the job also, but they have small screens.
Windows 7 http://www.microsoft.com/windows/windows-7/
(download seems to have finished, but available elsewhere.