You can play anything before burning crusade just fine but after that i would recommend you upgrade your graphics card and PSU. Personal Experience. Your setup will lag if you don't upgrade. If it's just for wow i would just get the 9800gt and get a 500W PSU, to play wow the way it's meant to be played. You will get great performacne with this.
With your current setup,you can run it but don't expect great performance from it.
So upgrade your VGA in order to get a smooth performance, and since your PSU won't work with powerful cards,then you have to upgrade it as well.So i vote for option 4 too.
you could play but it would be extremely frustrating and in high traffic areas the game would basically come to a stop. Once the new expansion comes out this year the experience would only get worse. even a lowly card like the ATI 4650 would be a big upgrade over integrated graphics
I had a 7900gs before and an hd4200 now on my mobo. I used to play at 1280x800 with medium/high settings with no problem. HD4200 is a bit better.
So I'd say try wow on your current setup. If your sarisfied with the resolution and fps, keep it. Else upgrade both gpu and psu.
Thank you to everyone for posting. You all have been very helpful.
I am very pleased with how WoW plays on this PC. My son plays a lot of hours on WoW, so I just wanted to make sure that it is OK to continue playing with the onboard graphics and 250w psu without damaging the computer.