The "Netbook" in question is using an ARM processor with Windows CE, not XP so the 128MB RAM is not realy an issue. More of a "Smartbook" than a Netbook.
If your wife does not want to watch movies or store music then there is no point getting a Netbook with a HDD as it will simple drain more power.
The real issue is going to be the keyboard, they are normaly fairly small/hard to use on such small machines. Might be best to pay the extra for a 10" machine. Prices on the older Atom variety should fall with the new chip coming out. And it will provide more function.
So this is a kind of smartbook then, what is the best way to connect this to the internet, at the min she has been using the wireless lan at home and using her mobile phone as a modem when at work or out and about, but i guess she will not be able to use her mobile phone as a modem to connect this item to the internet will she?