Linux was a VERY different beast in 2001. I spent days getting Debian up and sort of working! I remember Dell's dabble and I'm not surprised they let it slide. Modern mainstream Linuxes are a world away from what it was then.
Best way to try it is to get hold of a live CD (which you can boot from), try it and see what you think. A live CD runs off the CD itself, doesn't touch you current HDD and although its pretty slow (as you would expect) will give you an idea of what its like and how it picks up your hardware.
"....do you think mainstream software will work seamlessly with it or are there issues that need to be taken into account?"
Windows software doesn't work natively with Linux - it's a completely different operating system. There ARE ways to get an increasing number of Windows applications to run but its still a bit of a fiddle. Linux comes with its own big bunch of applications for free to do pretty much anything you want (burn CDs, play music, email, office suite etc etc) and these are generally very compatible with the files/document formats that Windows uses.
Compatibility, especially for MSOffice documents, isn't perfect (complex documents often display differently and macros may fail), but this is hardly Linux' fault - Microsoft keeps their file/document formats a big secret to prevent people switching and to force you to go on using MS. But considering that everything is reverse engineered, the compatibility is remarkably good (and you can save in .doc/.ppt/etc. format so that Windows users can use your documents).
"Also I've always wondered how much PC makers pay Microsoft for their bulk purchases of Windows, seeing as you can pick up a PC these days for £200 how much of this do you think is the Windows licence?"
PC makers actually don't pay MS that much - FAR less than the cost of buying Windows in a shop. Still, there are enough of them to make MS very rich! But part of the agreement in their bulk purchase of Windows is a clause that says that all PCs they sell MUST have Windows installed - they're not allowed to sell PCs either with no operating system installed or with another OS. This dodge is one of the ways that MS has maintained its unlawful monopoly on operating systems and its stranglehold on the industry.
Linux is, can I say, "different" - modern Linuxes generally install seamlessly and for quite a few folks it just works "out-of-the-box" - for many a bit of tinkering is requires, but the reward for a few days messing around is a fast, flexible, stable OS that is very secure and works well on older hardware too.
Oh, and it's all FREE....