Is your 1GB of RAM 512*2? are there 2 more open RAM slots? An extra GB of RAM, a new CPU cooler and a mild oveclock to 2.2 GHz or so should get you what you want, this should cost around $50. Though I would personally just get a new system.
Look for a 790GX motherboard, a cheap Athlon II X2, a BRAND NAME 300-350W PSU, 2 GB of DDR 3, a new HDD (recommended, not required) and a cheap case. You can re-use your CD-ROM, HDD, monitors, Keyboard, and mouse. This should cost you around $200 including a 500GB HDD, $300 if you include win 7.