If you upgrade, normally it is most cost effective to upgrade your mobo and processor, rather than just processor. This is not set in stone however, especially if you can find a fantastic processor upgrade that will fit for dirt cheap.
RAM go for 4 gigs, especially on a gaming rig.
Some new games require Direct X 10, which is only available on Vista and Windows 7, as I understand it, so upgrading that might be your best long term solution.
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