Performance doesn't have anything to do with OS , even if you have XP it will work as long as you do have a good graphic card.

Shader version refers to DirectX version, which concerns the kind of graphical effects. To use it, the OS needs to support it and the graphics card needs to support it. Your card supports DirectX 10/SM4.0 but your OS does not.

Shader Model 3.0 = DirectX 9 (XP is limited to this)
Shader Model 4.0 = DirectX 10 (Only Vista or 7 can use this)
Shader Model 4.1 = DirectX 10.1 (Only Vista or 7 can use this)
Shader Model 5.0 = DirectX 11 (Only Vista or 7 can use this)

So you would need Vista or 7 to get the highest level of graphical effects on SC2. I don't think it supports DX10.1 or DX11, correct me if I'm wrong. So you do indeed need Vista or 7. The game is perfectly playable on XP however and the difference in effects won't be that much. SM version doesn't affect performance, just detail.

That said, a 9800GT probably won't be able to run SC2 in DX10 at Ultra settings at 2560x1600 resolution at >30fps. It'll get about 20fps. So if you want absolutely the best possible detail then upgrade to a GTX 460 or something. If your resolution is lower than 2560x1600 then ignore that.

I don't think it will matter much, you'd be fine with something like XP with DX9 which would run faster for you anyways. DX10 is mostly gimmicks.

Yeah, if you have to pay out $100 or something just for Windows that supports DX10 then don't bother.

can you tell me if the difference is big enough to notice? i mean between dx9 w/ shader version 3 and dx10 w/ shader version 4. if the difference is noticeable, is it worth the cost?

i run 1680 x 1050 because my monitor is 22 inches.

I seriously doubt you'd see a big difference with that game, and when you play online, you won't have time to look at the graphics.

You only have 3.0 shaders.. pff what a nuub!

;D