While both should work fine, I think ZFS can take advantage of more memory (ARC). ZFS offers snapshots, boot environments, etc. however, for the use case mentioned, UFS should be fine. While Root-on-ZFS uses entire disk, UFS can be used with partition which can be useful if you plan to install multiple OSes on this machine.
You can do either. I used ZFS on a 768 MB 32-bit Pentium-M Acer laptop. You will need to tune it, considerably. The FreeBSD wiki has a page on ZFS tuning. Make sure to artificially limit the ARC to something like 64-128 MB.
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