Is there any difference between the two OS in terms of one being better for a development environment?
This is probably subjective, so you may want to make this community wiki.
But realistically, if you are developing on the Microsoft stack, you probably want to have the latest available operating system for that world. If you need to verify compatibility with older operating systems, you can use XP in a VM for most scenarios, perhaps barring unusually graphically demanding apps. The primary reason is that you'll generally be exposed to the current generation of UI conventions because it's always in your face, and you'll have the current generation of the development platform working on their "uplevel" environment, instead of suffering through whatever concessions to compatibility had to be made for those technologies to ship on time.
If you aren't developing for Microsoft technologies (e.g. you mostly write in Java or PHP or Ruby), you won't notice much difference. There are a few features in Win7 that make working with tons of windows easier... automatic grouping of apps, gestures that make displaying things side-by-side quick and easy, and other fit and finish things.
XP is reaching its end-of-life. (It's about time!) There's plenty of Microsoft development stuff that won't work on XP soon.
It's not development-specific, but Win 7 is a much better OS than Win XP. That will affect your productivity every day. Win-Left/Right/Up is enough to make it worthwhile.
I've worked on both at the same time. The biggest difference i found was:
- Win7 handles the load better on the machine, especially when you have several instances of Visual Studio loaded up, the memory usage is not as great and swapping between windows is a lot snappier
- under XP i would have to reboot almost daily, i blame it on the debugger. With Win7, i could go a month or more without rebooting. Having to reboot sometimes several times a day can be a serious PITA.
Personally, i prefer Win7 over XP by a long way, once you get used to it it is way nicer to use. And you should use Win7 for your development (or at least have access to it) as some things work differently under Win7 (like IIS, WIn7 has IIS7 which is a vastly different beast to IIS5 which is what XP has).