Is it more or less likely that malware will screw windows XP when the user is assigned as a limited account.

My suspicion is that the likely hood of infection is lower, but that malware might still wreck the system. (make unbootable)

If the user is assigned a limited account, it's less likely that the machine will be rendered unbootable. Anything that can render the machine totally hosed ought to require admin privileges.

Similarly, malware running as a limited user should only be able to install itself for that user, rather than all users on the machine.

That's what I thought, Yet, my 9year old niece managed to make the computer crash during bootup.

The BSOD seemed to be helpful.

The computer is being Nuked and paved now.