The 32 bit operating system isn't the problem. You are fine with that. Also, I think the dual core processor is OK. Your 'lag' problem is due to not enough memory and a slow motherboard. The 650i board is a DDR2 motherboard and only handles memory up to 800 MHZ. (I know. I had a 650i board. I had fits keeping it from crashing when all 4 slots were populated with 800MHZ RAM.)
Get 2 identical 2GB sticks of DDR2 800MHZ memory and try to run the memory at the full 800MHZ. 4 GB is all the 32 bit operating system can 'see'. But 4 GB is sufficient for gaming.
And use that CCleaner program to rid your system of resource wasting crap and wasted space.