[i]Can a first-time computer user handle Vista? [/i]
Yes, absolutely. In fact, in my opinion, it would be better to learn the newest technology rather than the older.
[i]Question 1: Will I be able to figure it out and help her get started?[/i]
You won't have as high a learning curve as she will, but you will find that things are quite different, and you might struggle to find certain things that are named differently, in different locations, and so on. As such, I believe you would be more helpful if you learned it first.
If you have no intention of learning Vista, then I would suggest you refer her to someone else for help. You might make it even more difficult for her to learn Vista. For example, you might have a tendency (as most people would) to say things like, [i]in Windows 98 blah, blah, blah...... and, I'm used to blah, blah, blah....... and, let's look here.... no, it's not there, let's go here..... no, it's not there either.[/i] Those kinds of things might only go to confuse a new learner more, not less.
[i]Question 2: I have a large library of software, covering just about anything you could think of. Most of it was designed for Windows 95 or 98. How much of this stuff will run on Vista?[/i]
All software license requirements should be followed. Sharing software is usually a violation of those requirements (unless it's freeware). Learning software licensing requirements - and following them - should be part of the computing learning process for a first-time user.
When a person purchases software, the compatibility list is made available. If it's freeware, you might just have to install it and see if it works. Be advised, however; by installing a bunch of software, only to uninstall it later (or worse yet, leave it there) will only serve to junk up the Windows Registry. I'm a strong advocate of installing only what you'll need and what you'll use; leave all the other stuff off of it.