Hey Dom, and Welcome.
I recently did my build for Adobe Premiere, and feel your pain. I was trying to do my first HD project over the summer on a Core2Duo with 4GB of Ram, and it was absolutely PAINFUL to do. It was plenty of hardware for good 'ol interlaced SD video, but progressive 1080p is a whole different animal. But here are some suggestions to get you moving in a direction in order of the most likely bottleneck:
1) More Ram. I have 16GB of ram, and max it out regularly on HD projects. It does not need to be particularly fast (though 1600 is generally within $10-20 of 1333 these days), but you need bulk amounts of it for Premiere. It will eat as much as you throw at it. I find that 16GB is "enough", but going with 32+GB would be even better if possible, and it is the cheapest and easiest part to upgrade in a system. If you are on DDR2, then it is quite simply time to upgrade your CPU/mobo/Ram. Be sure to set Premiere to leave 2-4GB alone for the OS and other programs so that you can still multitask while editing, otherwise premiere will eat it all, and make even web browsing slow when exporting a project.
2) More HDDs. RAID is great and all, so are 10K drives, but neither helps as much as much as having multiple single purpose drives. Your setup should have at least 3 HDDs. 1 for the OS and programs, 1 for content, and 1 for your scratch disc, cold storage (old projects), and rendering. After you have these 3 areas covered, then start thinking about setting up RAIDs for one of those purposes (probably best to RAID the content/footage drive). I run 3 7200rpm drives (you really dont need the low seek time for video, just decent throughput, so even some of the new 5900rpm drives do great for editing), and it has more than enough throughput for most things (though RAID and SSDs would help utilize my i7 better). To give you an idea, I did a test and was able to layer effects and transitions on 5 layers of video coming from a single 7200rpm drive. Granted, premiere throws everything in Ram pretty quick, so it may have been rendered in the background, but if a single drive can serve it to ram faster than I can set up the edit and play it back then RAID is really not needed. When you have a single HDD then it gets too bogged down with read/write requests, so even though it may be a fast drive, it is not allowed to focus on the task at hand, which creates major bottlenecks.
3) The CPU. Your CPU is the bare minimum for HD editing. Before moving up to the i7 I tried a Core2Quad (rough equivilant to your athlon 2), and it did not fix my problems (though it did help). I would highly suggest moving up to a Phenom2 or FX 6-8core processor if your mobo will take it. Also, something in the 3+GHz range will help as well. If your board will not take a better processor, then it is time to move over to Intel. Adobe products are optimized for Intel chips, and even an i5 2500 would be a massive step up for you, much less an i7 2600. For the mobo go with something that has solid caps, a good rating, and a p67 or z68 chipset. ASUS and ASRock seem to be the brands to stick with at the moment, but MSI makes some really nice p67 boards that would more than get the job done for under $100 if budget is a concern.
4) GPU. AMD makes great gaming cards, but they are not (well at least until the 7000 series came out they were not) good for productivity work. Adobe premiere takes advantage of CUDA processing on some upper end nVidia GPUs (specifically the 480, 570, 580, and all of the Quadro cards for the CS5.5 version). AMD's new 7000 series cards have a great architecture for professional work, but it will be some time until we see the software to take advantage of it. Also, the nVidia 600 series coming out should take CUDA to a whole new level. That being said, this should be one of the last things to upgrade as it will only boost the processing speed in specific situations. There are only some transitions, effects, and color correctors which use CUDA, but when they do it really speeds things up! I have been very happy with it because color correction is hugely important to most of what I do, and the CUDA processing lets me see the end result in real time, and it is (supposedly) of higher quality than the nonCUDA version of the same plugins.
On a final note; you did not mention what version of Premiere you are running, or what format your video is in. Getting a newer version of Premiere can help sometimes, and also converting everything to uncompressed or very lightly compressed (think lagarith) formats can help ease the strain on the CPU. Any time you have compressed footage (like AVCHD, h264, etc.) then the CPU has to decode each layer of video in real time... which is tough work. However, converting everything over can be impractical (especially with a small 500GB drive) as uncompressed HD video takes massive amounts of space, plus all the extra rendering time is a major pain in the... wallet. If you are getting paid for your projects, then it may just be time to upgrade the CPU, mobo, and Ram for $4-500, and then add a few extra HDDs/SSDs to the system over time to help out. Then use the upgrade as a tax deduction for 'work related expenses' if you run as a small business.
Best of luck!