Intel’s dual-core is a hack IIRC. If you want dual-core go with AMD (or even if you don’t, go with AMD :P).
Yes, Windows fully supports dual core, the same way it supports dual processor systems. However, most of your applications/games are single threaded so they will only be able to use one processor. If the Pentium D is x86_64 compatable than you will want Windows XP x64 edition (or whatever they call it).