Another thing you might consider is going the AMD route. A great AMD gaming CPU, future proof board and 4 GB of DDR3 can be as low as about $300. Intel isn't the end all, be all of CPUs.
Check out this upgrade:
CPU/Mobo: X3 440 and Gigabyte GA-790XTA-UD4
$197 after rebate
RAM: G.Skill Ripjaws 2x2 GB 1600 mhz CAS Latency 7
Total: $312. If you don't want CF, you can drop that to $275 with this CPU/mobo combo