http://www.google.co.uk/products/catalog...CGEQ8wIwAA
In short, definitely, as long as you don't want to watch 1080p rips.
That's basically the same spec as I've got in my current setup (see my signature). It'll be fine running XBMC in Windows 7, as long as you squeeze 2GB RAM into the laptop. Otherwise, it'll be dog-slow. You might have to change the onboard RAM stick if it's got 512MB as standard.
XBMC on XP should work OK with 1GB RAM but then you lose all the snazzy multimedia features that Win7 provides as standard.
You could use a Linux based XBMC setup (e.g. openELEC) and pray that the onboard GPU is compatible with Linux. If not, software (CPU) decoding should have no trouble with 720p. I found on my laptop that Ubuntu was painfully slow and there were documented issues with the onboard Intel GPU in mine that I suspect were to blame for the lack of responsiveness. It did get a bit better after a lot of messing around, Linux still takes a lot of work (although Ubuntu makes it a bit easier) but it is usually the most rewarding OS if you can get it set up how you want.
You can't upgrade the GPU in a laptop with a LOT of messing around. It's basically not worth the bother IMO but if you fancy it,
go for it! It does entirely depend on what the onboard video is, though.
And if you need absolutely HDMI, you're screwed.
Mine's worth £70 ish so I'm selling it once the Microserver is up and running.