Yeah, just stick with free-to-play, freeware, indies and older titles and you are just fine. With Intel HD just be aware that many games will have issues even if they are supposed to work. When I had my first low end rig with AMD APU setup, I usually just pirated game to see does it work because system requirements may vary for either side and it would suck to spend even couple euros to game that wouldn't run. I remember that Alan Waker ran 720p/~30FPS and they gave little pirate eye patch for Alan. Now I have bought that game so many times I lost count.
Here's few games I remember playing with that rig: Portal, Metro 2033, Bioshock, Mirror's Edge, Alan Wake, Batman Arkham Asylum, Trine, BIT.TRIP RUNNER, Dungeon Defenders, Orcs Must Die. Those are also the games that have been on X number of sales and bundles so if you are lucky some of your friends may have some spare keys left for some. Also those are the ones I remember playing from my thousand game library. Free games like Alien Swarm and TF2 use source engine which runs even on a potato.
If you are going to upgrade OS (and you definitely should from XP) then just go directly to 8.1 instead of making minor update to bit older OS. If you are being legit then 8.1 is only option. Having it for some time now I like it much more than 7 and metro is actually really neatly customizeable start menu.