AI caravans seem to have particular destinations pre-programmed, and if they have trouble getting there (dead-end terrain issues usually) they tend to wander back and forth. There was some suspicion that they were spying out your terrain but then someone else proved that they knew the whole map from the beginning anyway.
The key thing the AI need to start trading with you, if they are ever going to in the first place, is the Trade tech. Many of them never have the leisure time to build caravans anyway. They are not even as good as you at dealing with Barb attacks, or trying to keep up with city improvements or tech research. I usually only see a few AI caravans in the course of a decent game, one in which everyone has been pacified into Republics or Democracies and no one is battling over shared continents. If the AI caravan is far from home you can think about bribing it; it may cost less than building one locally, and if it is closer to one of your own cities it may "re-home" to your city, giving you a free local commodity that you did not have before.
The primary problem with running Civ2 on XP is the video drivers. Check the Tech Support forum for instructions on updating the Indeo drivers if you have trouble with the videos in XP. Others report it does work fine once the drivers are updated.
Barbarians come from three places: Huts, unsettled land (defined as land that is not in the city radius of any city, or does not have any improvements on it, like roads or irrigation), and pirates (Barb ships that land groups of Barb units). Pirates seem to "spawn" somewhere at sea once every 16 turns, starting on the 16th turn, so you should not worry about city garrisons until 3200BC (depending on the Difficulty level you are playing). Pirates spawn first; later in the game you will get "Barbarian Uprising" messages. The discovery of Mobile Warfare eliminates the threat of new pirate ships. As time goes on the number of barbs that will come from one landing or uprising increases, and do not depend on the load limits of a ship either: I have seen 3-4 Barb units debark from a Frigate, for example (load limit 2).
As far as settings, when I started I rapidly progressed from Cheiftain level to King level, then started learning the tricks of happiness maintenence. I had Barbs at Villages Only, but when I found out about bribing and "ransoming" Barb Leaders I set my Barb setting up to Raging Hordes. As my skills at combatting the AI increased the Raging Barbs were the only serious challenge left to master, as they were so unpredictable. Now I look forward to their appearance, even trying to cause some Uprisings by leaving vacant land for them to spawn in. When you are really in the groove we'll tell you about Barb Farms...