They were especially doing that back then to avoid having to pay for a patent license for the MP3 codec. You could only play mp3s in the user playlist channel if the OS supplied the mp3 codec.
Win2k was in fact already very suited for home users just from a technical standpoint. DOS compatibility was obviously lacking and indeed slightly improved for xp, but even that didn't run a lot of games. But it ran pretty much every win9x game I threw at it.
http://en.m.wikigta.org/wiki/User_Track_Player_(GTA_San_Andr...
I’m sure you can look up yourself what the consumer Windows was when that game came out, but clearly it did not come with an mp3 codec by default and the game definitely didn’t.