Which OS X is the fastest for my old MacBook?
I have the same machine &amp; spec, and have not noticed any slowdown when operating at the latest supported version of Lion when compared with previous versions. Of course, this is purely anecdotal, but reviews have also fairly repeatedly suggested a slight increase in basic speeds incrementally with new versions.

One this is for sure, throw in a cheap SSD of the same size as your existing disk, and it will fair fly compared whatever it feels like now.

Compare, for example, your specs to my Macbook Air 1.6Ghz Core 2 Duo, 4Gb RAM and SSD, which supports ML and feels faster than my 2.93Ghz iMac with 8Gb on the same OS (or did until I put an SSD in the iMac).

Put simply, your CPU and RAM can handle whatever you want to run just fine.  Your disk may start to feel the pinch a little, but small SSDs are very cheap these days and will easily make your machine feel like new - that particular macbook is at the sweetspot of benefitting most from an SSD for the least money.