Quite a few normal people use linux.
Friends of mine have installed linux on their parents and even grand parents computers, and they do just fine.
Like many before, I would recomend Ubuntu, as it's easy to install, even as a second OS on a Windows box. Or you can try this
Complete Download Options List | Ubuntu It let's you play with Ubuntu as a Windows application (no full OS install required).
The performance slowdown in Linux, if it's mostly while browsing, might simply be Flash. It eats way more resources and is way slower on Linux than on Windows. Blame Adobe, not Linux.
As a general rule, people who don't know much about computers, have a hard time installing an OS...be it Windows or Linux. OSX, might be a notch simpler, but they still get into trouble. Most people buy their computer with Windows pre-installed, so they never have to install it (at least not until Windows has been ground to a halt by malware and viruses...and then they generally call a tech savy friend or take it in for service).
The hardware compatability issue goes a bit both ways. For old hardware you may find drivers on Linux, but only Win98 drivers for Windows, so you're out of luck if you're running WinXP/Vista/7. On the other hand, a big reason for much of the hardware incompatability on Linux, is that hardware manufacturers don't make their technical documentation available to Linux developers. Which means that if Linux developers want to make drivers for the device, they need to reverse engineer it....which is very VERY hard.
From all of the above, you might have deducted that I am a bit of a Linux geek.
But I also run WindowsXP and OS X. Ubuntu is my main OS, WinXP gets used for games and video on demand service (that require DRM7), while my OSX laptop is slowly gathering a layer of dust. Different OS's work for different people.