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Of course. A netbook running XP is like any other laptop running XP.
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While you theoretically can run any windows software on a netbook running XP, bear in mind that they will run very slowly. Even the infamous Celeron 420 processor you find on the cheapest notebook is two times faster than the Atom 230 coming standard in every netbook.
An entry level Intel desktop processor like the E5200 is about 5 times faster.
Some software will also be limited by the screen resolution, especially some recent netbook that only have a resolution of 1024 x 576 pixels (most have 1024x600).
Many software need at least 600 verticals pixels, while many need a minimal resolution of 1024x768.
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I'm hoping by Christmas there will be some deals - my son who bought his own desktop will be peeved, but he does some gaming, so I don't know that he'd have been happy w/ a laptop that he could have afforded.
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As for gaming, currently all netbooks are only adequate for very old games or 2D games like card games.
If you want to game on a laptop you have to look for Laptop including Nvidia or Ati graphics, and avoid Intel Graphic. It's still cheaper to game on a desktop as good graphics for laptop are still priced at a premium.
A netbook is a good choice for a second PC as it have great portability, but most people would be disappointed using it as a main computer.