Are ALL games on steam supposed to be compatible with XP/Vista or is it less like buying from GOG & more like buying a physical disc?
I've got a bit of a hankering to play Hitman 1 again but the system requirements still mention Windows 95 which, apart from giving me flashbacks, makes it sound as if the software itself is unchanged.
What are the odds that I would buy Hitman, UFO or Beyond Good & Evil only to find out I can't play it?

All the games on Steam should be compatible. They even sell Commander Keen on there. What's the point in selling games if the majority of the computer users can't even play it?
I think you'll be just fine. If you have any other probs, check this thread out.

what i know and have read, it is more like buying just setup files, w/o guarenteed compatibility but i haven't any problems on steam (oldest game installed is x-com interceptor)

I've had problems with a few games I bought on Steam, but none of which was caused by it. The compatibility depends on the developer and such. Dos based games, like DooM and Heretic comes with Dosbox, but the overlay is not usable in those games. You can install a sourceport for these games, and edit a .bat file to be able to launch them through Steam.
As far as Windows games go, as I said, it depends on the developer and such. GRAW, for instance, was not officially supported in Vista, which is one of the games I cannot play, though peculiarly enough GRAW 2 is, but that doesn't work for me either, with the exact same problem. My problem seems to be an extremely rare bug though, since I've only managed to find two other happenings of the same thing after spending up to an hour and beyond, searching around for it.
Looking at the Steam forums for the games first might be beneficial. There is always somebody complaining, but the bigger the shitstorm, the higher probability it is for the game to be working bad in some state or another.
EDIT:
When you buy things, you must download them, update them and play them through the Steam client, in case you didn't know. Though you can use the data files for games for source ports and similar, by finding them in the Steam folder.

every game I have bought works on both vista and xp.
here's a list of my games:
http://steamcommunity.com/id/weclock/games

Ok thanks guys, I suppose I'll pretty much just have to pay my money & take my chances.
I've got all 3 major compatibility concerns in one convenient package, laptop GPU, vista & 64 bit OS so it might be fun getting it working. Hell if it doesn't work on my laptop, I'll just comandeer my sisters computer and play on that.

I do remember when Hitman (1) was released on Steam, there was a lot of noise on the forums. This had more to do with Valve dropping support of Steam on older OS around the same time than anything else.
The idea being that lack of support for WIn98/2K would mean lack of support for games of that era. Looking around, XP&Vista users appear to be able to play it however.

I'll be interested to hear how you get on with Beyond Good & Evil as I hear that has serious Vista problems.