I have two directions in which I can go.  With my current setup I don't think I can handle newer games.  Should I upgrade my ram and video card to squeeze out some performance until Nehalem comes out and prices go down a bit; or should I spend twice what it would take to that and get a whole new system (making the jump to pci-e, dual/quad core, ddr2 and vista.)  I don't really want to spend that much and the about $380 (give or take)   it would take to upgrade seems more reasonable a price than the $600 it would to do a total upgrade.  The one major advantage of a slight upgrade in my eyes is that I could use my current system as a home theater build once I get a new dedicated machine in about 1-1.5years.  
 
For about $380 I would be jumping to:
 
http://www.newegg.com/Product/Prod [...] 6835118030
        - non stock cpu cooler to lessen noise
http://www.newegg.com/Product/Prod [...] 6811999122
        - a fan the motherboard can regulate
http://www.newegg.com/Product/Prod [...] 6814131090
        - supposed to be way better than my 7800gs
http://www.newegg.com/Product/Prod [...] 6820227210
        - dual channel and a bit tighter of latency
 
http://www.tigerdirect.com/applica [...] u=ULT31664
       - My current ram is that, I could save some more money and get another stick of it
 
I do realize that the video card will be bottle necked but I'm pretty sure I would see enhnaced performance over my current setup... of course I could always go in it for the long haul and do no major hardware upgrades til my next build - granted I buy bioshock and see if it is playable...What to do?

P.S.  I have a Intel pentium 4 650, 3.4ghz stock cooler and stock speeds, GA-8S661FXM-775 motherboard....

You sure picked out the most overpriced parts. Even if J. Alba gives me a BJ, I would blow that much on a weak gpu.
 
Search for HD3870 at the egg & sort the list from lowest priced to highest. It's still cheaper & faster than the one you picked out.
 
Set your primary objective. Only one. You got a budget of $600. What else can be savaged from the old rig?

Well the issue is that I have agp....  And the main issue with getting a new motherboard is I would have to get a new windows cd...which tacks on the extra $120....  If I did I would want an 9600gt but I guess I could be open and get other cards.  It is easy to overclock video cards right???  Also, I'm not so sure my motherboard supports dual channel so I could save more money on that venue.  If I got that agp card (the last and best one to ever be made most likely.) then I would need an aftermarket cooler due to how its cooler sticks up; because my case is small and my power supply is directly above my video card...  The 3850 agp should give me a significant boost in video applications and for another matter allow me to hook my pc up to my hdtv(making it useful long after I get a new machine)

For one, ditch that zalman cooler, read the toms test they just did for coolers, it failed, didnt offer better cooling then a stock heatsink, and took 2 people to install, also it is possible once its in, thats it, aint gonna come out. Do you own xp already? You do know you can put it on 3 personal computers right? Video card overclocking is over rated these days, most cards are almost at there max right outta the box. Personally i would wait, save up some cash, and but a whole nother computer, yours is pretty old, your best performance boost is going with another stick of ram right now, you could upgrade the videocard, but why throw money at something that is going to be replaced pretty soon anyhow? I would save up somemore cash though, regardless of what you do, your not going to be impressed by the improvement, i went this route last year, knowing i was going to upgrade this year and did, it was like going from atari to ps3, night and day difference, after first fire up i was 100% impressed with the difference.

$220 for an HD 350 512mb?!?! Thats way overpriced, look harder those should sell for around $160 but you should just get a 9600gt.

My bad... thought it was pci-e.  
 
What's your current specs? Does it come with an XP cd?