500MHz will be a bit sluggish or even downright slow if you use Gnome or KDE. I woudl recommend flux, icewm, twm or any of the simpler Window Managers. KDE and Gnome are considered Desktop Environments (some people call that a fancy term for bloat
Java will work well on Linux. After all, Sun writes Java, and they are supporting Linux fairly well now...
The Mandy problem is fixed. Even if you have a problem drive and use software that blanks your CD-ROMs flash, there is a simple procedure to reload your CD-ROM.
I'm not sure about the MSN/Yahoo IM and voice thing. I do know that although Yahoo supports Linux enough to make
an IM client for Linux, it is sorely lagging when compared to the Windows version they offer. I think GnomeMeeting will interface with Microsoft NetMeeting, if you want to go that far...
As for security, it will be as secure as you make it. A Linux box can be more or less secure than your average Windows box. I feel that if you crank up security on either OS, you will be OK. Security is a process not a product. However, it will be easier to look at, maintain and tune your security on a Linux box, in my opinion.
Anti-virus software? Only if you use it to serve mail to Microsoft PCs! If that is your situation, it will be a good move to filter out those things for your poor hapless MS PCs.
And for firewalls... If you just maintain your ports, and make sure that the only ports open are the ones you need (and the only services running are the ones you need - no Apache or sendmail if you don't need 'em) you should be pretty well-off. And, for your router, it is good advice to remember to maintain that periodically, and verify settings haven't been altered from a remote hack - it happened to my Linksys router! They have firmware in them, and can (usually) be updated with new releases from the manufacturer.