yes, it's compatible. your motherboard has a pcie 1.0 slot. why not grab the hd 5670? add a few more dollars and it's perform on par with nvidia 9800gt!! u'll see much more improvement from ur previous fps.
PSU? brand? model?
Yes, it should work fine...
You have a small monitor, so a FAST CPU is better than fast GPU.
Agree with sHuib86, why don't you get HD5670?