Hi,
Please suggest us which version of Linux is most compatible for Nagios installtion.
We are going to install nagios 3.0.
Also Please suggest the best nagios version for good performance.
I think any Linux that is configured nicely would do the job. Try most popular distributions like Ubuntu, Debian, RedHat…
Personally, I’m using Nagios 2.10, and I’m very satisfied with it’s performance. As for version 3.x I haven’t tried it, but from experience from other users on this forum I think it is as good as version 2, but it has much more options, although you could find a bug or two. But, hey, which software doesn’t have a bug 
I use ubuntu server 7.1
Very easy installation steps and very compatible
I use ubuntu 7.1 as well. Pretty simple. Install UI and it will be very simple…to use.