I use OS3.9. It's supposed to be more stable than OS3.5, and has a full version of a TCP/IP stack to get you permanently connected to the net.
Picasso96 id pretty much the standard and is distributed with the OS3.9 CD, along with an avi player, mp3 player and some other useful toys.
Depending on how much you want to customise your OS, I'd download VisualPrefs and FullPalette from the Aminet as these will allow you to customise the look of your Workbench to a fine degree. MUI might help too.
