My understanding is that MSE will still continue to get updates, but you will simply not be able to install it after that date if you do not already have it. Could be wrong though, so you should check their website. Either way, getting off of XP is probably a good call because I am pretty sure there are all sorts of fun hackers out there just waiting for D-Day to arrive when they can use their exploits without worry about MS patching them.
Step 1: Figure out what your options are. Visit dell's website and see if they have any 64bit drivers for your laptop. If it supports Vista 64bit then there is a very good chance it will run Windows 7 64bit just fine, and a decent chance that win8 64bit will work. If there are no 64bit drivers, then consider the 32bit flavor of either win7 or win8.
Step 2: How do you feel about win8? I personally like it, some people can't stand it. MS keeps promising fixes for metro to work better with keys and mice... but obviously no guarantee there. If you like (or can deal with) windows 8, then go for it. It is noticeably faster than win7 on older systems, and will obviously be supported longer than win7 will. If you can't stand win8 (or your mom can't stand it) then go find a copy of win7 while you can still find them.
Step 3: How much money do you want to throw at this laptop, and how long do you expect it to last? HDDs tend to last 3-5 years under moderate to heavy use, and upwards of 7 years with light use. If your laptop uses a SATA HDD (like I think it does) then you may want to breathe some new life into it with a new SSD. This will make your laptop considerably faster, and you should be able to pick up a 120-128GB SSD these days for ~$75. If you have an empty ram slot (Dell typically installs single 2GB sticks, leaving one slot empty) then you can upgrade to 4GB of DDR2 for ~$30 which will also help speed things allong. An OEM copy of Windows 7 or Windows 8 is going to cost $100-140 depending on the version (home/basic, or pro/full).
You may also want to look into a newer, higher capacity battery to bring battery life back up to par, because I am sure a laptop that old is not holding a 3-4 hour charge anymore. that will set you back an additional $30-40.
All told you are looking at ~$200-250 in upgrades to get on a modern OS, a newer/reliable/fast SSD, and enough Ram to not have to worry about resources. If the rest of the laptop is in good shape, then this could be money well spent as it could probably last for another 5-7 years... but if it has been through some abuse over the years, and has been having other issues, then it may be time to simply look for something newer rather than throwing good money after bad.
Hope that helps!