If you're running Windows 7, especially 64-bit versions, 4GB RAM will help out.
But if you're more interested in upgrading just the video card, go for a 9600GT or higher. However, I would get an Nvidia GTS 250 or ATI HD 4850 since they'll have a decent bang for your buck. To take care of the low RAM problem without any memory upgrading, increase the page file size (google it or search tomshardware). Helpful, but not as efficient as physical ram.
hi, i was looking at the 9600GT upgrade from my 9400GT as others have suggested. keep in mind im looking for the cheapest upgrade for my usage: WoW, prolly Civ5 D3 down the road, and photoshop editing and what not.
I'd pick the 5770 from a brand such as HIS, Asus or Gigabyte.
As for what you've asked, Upgrading your GPU to atleast a 9800GT should alleviate the problem and the ram would be a good idea too, However with the 5770 your future-proofed for a good period, then you can just work on your ram at a later date.