The only difference I can think of is that Windows 8 lets you run games in lower color modes without changing the entire desktop. So if you have games that require 16-bit color or 256 color modes, you’re better off running Windows 8. Otherwise, the main differences have nothing to do with why you are looking to upgrade. (A big one is that Windows 8 is still cheaper).
And, despite the naysayers here, Windows 8 is currently outselling what Windows 7 sold at this time in its release cycle. Now, maybe that will change now that the cost has went up to $69.99, but we’ll see.
And while I don’t recommend upgrading just because you’re losing support, I do think you’ll like Windows 7, since you have the hardware to run it. And you can get Windows XP mode if you need it. But you didn’t say if you got the 32-bit or 64-bit version. The former generally doesn’t need Windows XP mode, and uses half the memory. The downside is that it can only use a little less than 4 GB of memory, and won’t be quite as fast. And if your board supports EFI, it will boot much faster in 64-bit mode, too. (I think. That may be a Windows 8 only feature.)
Hopefully you do realize that you will not be able to keep any of your apps or settings. And you’ll need to make sure you can get the Windows 7 drivers for your hardware. (Since you got it only 5 years ago, check the manufacturer’s website. They’ll probably have them.) Installing a new OS can be a bit tricky, though it isn’t too bad. I’ll give you a couple pointers.
My first advice is to install Windows 7 on the new drive, leaving XP on the old one. Due to reported problems with not installing Windows 7 on the first disk, I recommend taking the entire Windows XP drive out of the system. You aren’t planning on dual booting, you won’t have to worry about jumpers, and if you need to temporarily get back to XP before the install is complete, you can swap the drives back out. There’s no need to close the computer back up until the install is complete, anyway. And you can have the drivers on a USB flash drive, ready to go.
The second piece of advice is for when you are ready to plug the XP drive back in. If you plan on using it as an external drive, buy one of those USB enclosures and don’t worry about it. (Make sure you get the right one, though. Check the plugs to make sure they will fit. SATA plugs are much smaller than ATA plugs.) Plug it in as soon as Windows 7 is fully loaded. But if you want to use it as an internal drive, make ABSOLUTELY sure that the jumper is not set to the “Master” or “Primary” position. That can really screw things up, ruing all your precious files that you’ll want to copy over.
If you don’t feel comfortable with this, get someone who does to help. On the other hand, if I’m telling you stuff you already knew, I’m sorry. I’m just being thorough.