Sky-Captain,
Have a look at the
Mac Mini. Not overly powerful, and they need the RAM bumped to at least 512MB, but they can do pretty much everything people use their computers for. Email, surf the net, MS Office, organize photos, play MP3s and burn CDs/DVDs. Those Macs are only 5cm high and 16.5 cm wide!
Thunderbird is just a plain email program. It can't connect to Hotmail, at least not easily, but can connect to any POP3 or IMAP account. Both it and Outlook Express should be able to connect to Gmail as long as POP3 access has been enabled for your Gmail account. Thunderbird is far more secure than Outlook Express though.
I also forgot to mention Firefox as LandAfter suggested. I use it myself and only go back to IE to for the Windows Update site. It's not completely invulnerable, but at least the developers think about security.
I was just asking about your firewalls as you should only have two running on your computer at once. Two running at the same time can step on each other's toes. Keep the ZoneAlarm firewall running and make sure the Windows XP one is disabled. XP's firewall isn't really all that great anyways.
goates