Upgrade CPU with Existing MOBO

The fastest CPU your motherboard will support is the
AMD Phenom II X4 975 Black Edition at 3.6GHz
http://www.newegg.com/Product/Product.aspx?Item=N82E168....
but at $150, I think there are other routes to look at not to mention the following disclaimer from Gigabyte... "(Note) If you install an AMD AM3/AM2+ CPU on AM2 motherboard, the system bus speed will downgrade from HT3.0(5200 MT/s) to HT1.0 (2000 MT/s); however, the frequency of AM2+ CPU will not be impacted."
To add any type of decent graphics card, a power supply upgrade would be in order (especially if you go with the Phenom 4 core which can draw up to 125W - without overclock - just by itself)
As far as the graphics card suggestion, start a thread in the graphics card section but explain there what kind of games you want to play and at what settings - give them a budget too, that'll help.

You probably want to upgrade your RAM also, at least to 4GB.

Actually, an X4 970 is the top quad core processor and the X6 1100t is the top hex core. Being the later is getting very hard to find an X4 970 is probably the best bet. You can get an OEM X4 970 for $110 at Newegg with the promo code.

http://www.newegg.com/Product/Product.aspx?Item=N82E168...

You will need to have your own HSF with an OEM though. Also, you might have to update the BIOS to have it run one of the AM3 chips properly. As far as a GPU goes you can get an HD 7750 that would require a new power supply. Anything more than that is going to need something better than the 300W you have.

i m using my MOBO since 2009( 3.5 yrs).
Do it required to be replaced OR it will work some more years on above cpu upgrades

-What is "the system bus speed will downgrade from HT3.0(5200 MT/s) to HT1.0 (2000 MT/s)"?
- Which processor is fastest for this mobo which will not downgrade the HT Link speed?
-What are AM3 ready ( are they also contain amd phenom 2 x6 series cpu) mobo?

You really need to upgrade the mobo also if you want to upgrade the cpu because putting an am3 cpu in that board will downgrade its I/O speed significantly.

if putting a AM3 CPu downgrades the speed why Gigabyte has given this facility of AM3 ready mobo......

Only because it is possible to put a AM3 socket processor in it and it will operate - hence AM3 ready. PC and component makers often use the term "ready" when they should say "iffy", they use the term "compatible" in much the same way. That is the reason that in-depth research and asking questions on these forums works - helps to clarify things that aren't obvious or even those that are blatantly misleading as others have found before you. I have found that the only terms you can trust are "compliant" and "certified" and even then... research all you expected needs - "will this fit what I want to do?" - like when you started this thread - we can't always guarantee you'll like the answers though.
After re-assessing what you are trying to accomplish, I think you might want to look at a "real" upgrade - Mobo, Ram, CPU and Power - it can provide a very balanced base which can be upgraded - You are pretty much stretching what your motherboard can handle anymore as is - I don't think a CPU upgrade will be that economically advantageous.