Depend on your third party application. If you are using Window 7 and try to install third party apps from Window 95 or 98. Or if you are using Window 98 and install third party software which are meant for Window 7. Check the application to see whether it can run on what Window before installing.
Well, in my opinion, XP is a lot more compatible, but, like racoon8995 said, it depends on your specs!