If this is your motherboard... http://h10025.www1.hp.com/ewfrf/wc/document?cc=us&lc=en...
... then you are limited to 2 x 2GB sticks of DDR2 PC2-6400 memory (800MHZ). That would be the first thing you should upgrade. Always try to buy/install dual channel memory in pairs.
You really only need the 32 bit version of Win7 because of the board's 4GB limitation, but that's not important right now.
Since you say you will use the machine for gaming, spend the remainder of your budget on a good graphics card.
Your MB is OK and the processor is OK. The next upgrade is retiring the GeForce 9800 GT. That's what's holding you back the most right now. Spend the money you have on video. In a year or two you should swap the MB, memory and CPU for new ones. (DDR2 won't work on modern board at that time).