I agree with the other poster, your system would use it just fine although not as well as it could.
I would very much suggest more ram and a lesser video card unless DX10 is an absolute must for you right away.
And, given the ram prices it's hard to recommend DDR1 when DDR2 is a similar price... though that involves upgrading everything else.
Presuming you can't afford that...
The thing that I would do is hold out with this system for as long as possible and save up for a more complete upgrade. Whether it's C2D or AM2 doesn't matter a tremendous amount in my opinion since price is more of a factor to me, I can't afford the fastest CPU so it doesn't matter to me which company makes it I just want the fastest for the money I can afford, but I can't make that choice for you.
I would only get the 8800 now if you plan on upgrading the rest of the system fairly soon, otherwise by the time you get around to upgrading it you might very well want something better than the 8800, and you'll have the same problem.