When you switch to Win 7, you'd either have the same performance as with XP or probably lose out 5% or less. Though the performance loss is very marginal (and really not noticeable) and you'd just love Win 7.
Well actually moving to windows 7 with the setup you have will feel alot faster and snappier. I noticed a big difference moving from XP to windows 7 but make sure you get the 64bit version. You also should add another 2GB of RAM and you will notice a big difference going with win 7.
about the grafix card - can you install the latest catalyst driver for your card? that way you'll manage with windows 7. If you cant find the driver - let windows update take care of that. I just installed windows 7 ultimate x86 on my brothers gaming rig 2days ago , really flash!
best windows so far apart from XP, heres my brothers specs
in coding language - x86=32bit and x64=64bit , yeah its genuine Windows 7 Ultimate 64bit on my rig and 32bit on my brothers rig
basically the rig my brother uses is my old one, i own a C2Q now and i run a 64 bit on it. The 64bit is used for rigs that have more than 4GB of ram since in the 32bit versions, windows 7 can only recognize a maximum of 3.5GB of ram out of 4. By now you know your running your rams in dual channel so you shouldnt go for any other increment in ram. If you do, however, think of buying 2x2GB of ram, then you should choose 64bit version.