Is this laptop worth buying? ($735)?

I think it's a pretty good config. You might want to bump the memory up to 4GB now so that you don't have to worry about it later. You might be able to save money by taking off the Adobe stuff and the online backup unless they are free upgrades or you really need them. As for downgrading to XP, you might want to consider upgrading to Windows 7. I've tried it and it was pretty good (though I personally never had any issues with Vista). It runs better on less than its predecessor.