In my opinion Windows 7 is the best OS Microsoft have released to date, once you have it configured right. Windows XP SP3 is supported until April 8, 2014 (no more updates after that).

I am using MS Security Essentials for antivirus (freely licenced to home users and businesses with up to 10 PCs) and haven't had any problems to date. But I am sensible.

AVG Free is OK if you are sensible, not so good if you aren't. I have used it in the past on multiple computers at home and rarely had an issue, if ever. I have seen AVG protected computers stricken with viruses, though.

I have used NOD32, Kaspersky and Norton in a professional capacity and have no problem with any of those on a modern computer. Norton used to slow down your computer something horrid but is much better these days. If you turn off enough of its features it is not annoying. Never tried Sophos, so can't comment.