Yeah it sounds like overheating. But your computer is very old, i wouldnt waste any time or money upgrading, a whole new build would be best.
I mostly agree with you, but assuming the motherboard supports it, 2Gb of RAM would certainly help. Windows XP runs fine on 1Gb of RAM, but Windows 7 really likes 2Gb minimum.
But yeah, unless your budget is $10, in which case RAM is your only option, a new PC is really the answer. Pentium 4s are really no longer viable.