Bottlenecking Question - GeForce GTX 460 1Gb

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Source.

There's a very good chance that your CPU is holding you back. Overclocking the E5200 will help a lot.

What kind of motherboard do you have?

Yeah, it is your processor that is the issue. 3D or not a C2D at 2.5ghz is going to massively bottleneck a GTX 460 at 1280x720. Feel free to jack up the graphical settings though. They almost always stress the video card and not the processor so there's no reason not to.
I don't suppose your motherboard allows for overclocking? Even on the stock cooler you should be able to get that processor up to 3.3-3.5ghz, probably 3.8ghz or so if you get a good aftermarket cooler. If you can't OC then replacing it is the only real choice. Something like this would be alright and help a lot although it will still limit the card at that resolution;
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
Looking around the LGA775 quad cores of a decent speed are just too expensive for me to recommend. You would be better off getting a new motherboard and a sandy bridge chip than spending over $200 on something that is 3 gens old now.

Thanks a lot for your responses jsc and jyjjy. It's great to know why I'm not getting the most out of my setup.

My motherboard is a GA-G31M-ES2L, I was considering maybe an E8400, but it sounds like overclocking my E5200 could help matters. What kind of frequency would I have to reach to completely iron out the bottlenecks? What kind of fps increases could I expect?

I would get a good cooler and put it as high as it will stay stable with acceptable temperatures. That should make it adequate for pretty much all current games. I've got one of those processors myself and they really do OC well. It's got a high multiplier so you won't even have to push the front side bus too high. For now you can put it up to 266mhz which with the 12.5 multiplier will give you 3.33ghz and a nice boost already. You'll probably have to bump up the voltage slightly for that but not by much. Then when you get the cooler see how high your chip/motherboard can go.
The main advantage you would get from an E8400 is 4 more MB of L2 cache which is nice but not nearly worth $170.
If you want a real upgrade I would recommend something along the lines of these;
http://www.newegg.com/Product/ComboDealDetails.aspx?Ite...
http://www.newegg.com/Product/Product.aspx?Item=N82E168...

Thanks jyjjy, that's great advice. I'll overclock it tonight and post the results as soon as I have them.

Ok I'm back from work with the results! And they are...

****ing outstanding. Apparently some time (a long time) ago I borked up the BIOS settings for my Intel E5200 2.5Ghz, I think I'd had some issues with random restarts so I'd underclocked it. It was running at 1.2Ghz... horribly embarrassing I know.

From playing Bad Company 2 choppily it's now running like lightning (and in 3D) and the same goes for Crysis 2 and a bunch of other games.

FYI it's now running at 3Ghz, so a conservative 500Mhz overclock. The whole computer feels like it's speeded up.

Thanks guys!

Raising the speed of your processor 250% will do that   3ghz is right aabout where those C2Ds can be considered competent for most current games. Especially with that card at that resolution though you are still going to be limited by the processor in most games. So consider a cooler like I suggested and putting it up even more to get the most out of the GTX 460.