IMHO, it depends on how much RAM you have:
4 - 16MB: System 7.1 or 7.1.1, lightweight, speedy, and great for low RAM systems.
16 - 32MB: System 7.6.1, or if you can't get it, 7.5.5: more modern than 7.1, yet still very speedy on the '040s
32MB+: Mac OS 8.1, the most modern OS that will run on a 68k. If you have a big HDD (reccommend at least 250MB HDD for it to be usable) and a lot of RAM (32MB+), OS 8.1 will absolutely love you. I have 8.1 on my hotted up LC475 (full '040, 32MB RAM, 1 GB HDD, 1MB VRAM), and it flies like a bird
4 - 16MB: System 7.1 or 7.1.1, lightweight, speedy, and great for low RAM systems.
16 - 32MB: System 7.6.1, or if you can't get it, 7.5.5: more modern than 7.1, yet still very speedy on the '040s
32MB+: Mac OS 8.1, the most modern OS that will run on a 68k. If you have a big HDD (reccommend at least 250MB HDD for it to be usable) and a lot of RAM (32MB+), OS 8.1 will absolutely love you. I have 8.1 on my hotted up LC475 (full '040, 32MB RAM, 1 GB HDD, 1MB VRAM), and it flies like a bird