One of the problems with the above mentioned bare bones system is they give you a price included component that's so low quality that no one would or should use it, then when you uprade to a decent component you get charged full pop for the upgrade. So in answer to question 1, you can do better doing it yourself. Question 2 is in most cases you're better off using 2x2GB DDR2 800 RAM. In a low performance system you'd never notice the difference in DDR2 667 RAM, but unless it's free or maybe $20 (if then) get new RAM.
Question 3 In most applications the E8400 would be faster then any AMD 2core CPU and most Intel quad cores, there are a few applications when a quad core will outpace a 2 core though... i.e. video editing, 2 or 3 games.
AMD should be a consideration only if you're looking for a budget 2core CPU. You might take a look at the system builder marathon builds for about $625 to get some ideas.