I have owned one of these boards a while ago and know the Largest CPU that it will accept that is still available is an XP3000 in its 333fsb flavor. I believe this CPU is no longer in production, Tigerdirect still stocks them. Also there was a XP3200 model with this fsb in limited quantities and would probably be like looking for a needle in a haystack. Both these CPU's were very hot (over 70W i believe) so a cooler rated for this speed CPU is in order if you decide to replace it. And on that note try to avoid a heavy cooler that could damage your motherboard, Artic Cooling makes a cheap and reliable cooler that doesn't put too much of a load on the ZIF socket for under 20 bucks.
Absolutely not. You can use whatever RAM you want. Look, I have to be honest with you though. You are better off upgrading the mobo and the CPU. You are going to drop 120-140 on a CPU that is not going to yield you any serious improvements. When I overclocked my XP-m 2400 from 1.8 ghz to 2.35 Ghz I noted the following improvements:
Source file: 2:02 min/sec VOB MPEG2 file
Encoded it into 1/3 of its original time using auto GK.
1.8 ghz mode took 2:12 min/sec to finish
2.35 ghz mode took 1:45
A 1.8 ghz Athlon 64 took 1:35
If you bought a sempron 3000 you would get comparable performance to the A64 3000 quoted above. for about 80 bucks. You can find an AGP based mobo for about 50 bucks. You would also get a better gaming rig and it would be cooler. Trust me on this. I have your same computer sitting at home right now...