To be honest, that's not really a gaming rig. If you want to be able to ~play~ the newer games, just updating your RAM might suffice, but you'll still be on lower settings.
In my opinion, upgrade. Here's a quick pass based on the points you had:
- Processor's debatable, you've got a 64bit which is a good start, if you're upgrading everything else (which I'm suggesting you should), then upgrade this as well, mostly because its less of a hassle than taking it off your old mobo & installing it on a new one (and finding a new one that's compatible)
- Go to a GeForce 200 series. Even just the 260 (which is reasonably priced now)
- HD space is up to you, doesn't matter to the game. Price per Gig has dropped substantially, so if you're tight on space, going up to a TB isn't really that tough to do, and then your space problems should be eliminated forever really.
- If you're building a new gaming rig, 4GB is minimum. 8GB+ if you want to splurge. Or just get a motherboard with 4DIMMS & put 2x 2GB sticks in so you can expand to 8+ later.
- With all these other additions (or if you decide to just keep your old system's periphs & update the vidcard), you're going to need at least 1kW to be on the safe side. My system's along the lines of what I'm describing, and I've still had a couple crashes due to low wattage when everything's running all-out (causing me to change some settings & its fine now)
- If you're upgrading everything else, get a compatible motherboard with the associated features you require
- Vista or Win7; same diff / personal preference. If you're getting something new, Win7's possibly your only choice.
http://www.memoryexpress.com <-- Best computer hardware store in Alberta. I've built my last 3 rigs through them.