Cheap upgrade would be to add 2 gigs of memory and replace the graphics card with something that has a bit more juice.
DDR2 memory is a touch expensive though, so if you can get it used somewhere that will work out just fine.
But you can still get 2x 1GB sticks for about $25 so not overly expensive.
If you don't trust your current PSU and want to get a new one, then it depends on how high you want to go with graphics.
650W is a good amount for any single card solutions. 750W works with most budget oriented SLI/Crossfire solutions. ( up to 560Ti SLI and 6950 Crossfire )
Antec, Corsair, PC power & cooling, Seasonic, Silverstone, XFX
For graphics card, the CPU will eventually bottleneck you so no point in going over the top with it.
Radeon 5770/6770/6850/6870 from $100-180
Nvidia 550Ti/460/560 from $100-180