This has already been discussed many times and a long time ago. Please search and find the answers already given.
Summary: The text in 3.36, rendered via GDI+, was actually not very good, and it crashed a LOT and was slow. Win7 and Vista SP2 have access to DirectWrite which produces superior text rendering in every way. For XP, I chose to use GDI (no '+') for text rendering in order to have stable (non-crashy) text rendering. The "smooth/sharp" option just chose between GDI+ and GDI rendering, but mostly it just had the effect of disabling antialiasing -- you can do that by turning off antialiasing on the right edge of the toolbar.
And yeah, it's time to ditch XP. Paint.NET v4.0 will not work on XP, and Windows 7 is really good.