1) Is it possible to make a back-up disc for my operating system (Windows XP Home version) and how?
Not unless you have a bootable Windows XP CD, in which case you can simply make a CD copy (i.e. a block by block duplicate CD, not copying the contents of the CD to another CD!).
You can use disk imaging software to create a backup of your entire system drive, which could be re-installed in extremis.
2) I've got about 4000 photo's in the "My Pictures" folder in "My Documents" (9.7GB)
Nero 7 says it can burn data dvd's, so I reckon that's 2-3 discs. Are there any disadvantages of doing this rather than what I've been doing up to now (burning onto cd's)
CDs have a much, much, much longer lifespan than DVDs. CDR is longer than CDRW, longer than DVDR longer than DVDRW. CDR likely to last 100 years in optimum storage conditions, DVDR possibly as little as 10. Manufacturer's figures.
Belt and braces is advisable here - store backups onto at least 2 media, e.g. CD and hard disk.
SD