Yes you are probably better off in 6.5(.5) for a recording with other people, as you know it is stable. 7.5 still has a lot of issues.
About latency: your assumpions are correct. There are two different ways of working actualy:
1. Play all sounds trough your computer, even when recording (so then you can use and hear plugins "live".)
Obviously this will put a load on your cpu. In my experience 128 samples is a workable latency setting for your soundcard when recording live sound, you will still hear some "delay" (best noticeble on vocals, it sounds like a chorus or flanger) The latency also depends on your soundcard ADDA converter, the more oversampling the more delay. "roundtrip"latency (=ADDA converters + computer latency) is the latency that counts.
2. use "direct monitoring" and your soundcard mixer or an external mixing desk for monitoring live sound and mixing your already recorded computer tracks. Now your souncard mixer, or an external mixer is handeling the monitoring, not your computer. Thus less cpu load, AND you can set your latency settings higher to make things easier for the computer (give it more time to calculate things, it wil still playback pre-recorded things at the right "time". Live things now will have a notiable delay when you would switch off direct monitoring.)
The downside of this: now you cannot use guitar-amp plugins, or other effects from the computer to enhance your sound while recording.
You might wanna find some way to be able to change this settings quick and easy, for example by adding cubase keycommands and OS shortcuts for this settings.
google 'direct monitoring" or/and "DAW latency for more info on this subject:
It is very well possible to run a full band setup trough your computer with low latency, this is what I do all the time. It depends heavyly on the capabilities if your "total" system, and the plugins you (wanna) use, so this will be different for every setup. As you can see in my sign my computer is a bit outdated like yours (no offense :)) , so it can be done..