Honestly, I wouldn't pour any money into this system if I were you.
The trusty steed performed admirably throughout its long life, and it doesn't deserve to be put on life support.
Seriously, though, I think that the parts this thing could be upgraded with haven't been manufactured in so long and supplies have most likely dwindled to the point that they are quite low everywhere. Demand + very low supply = high prices. It is likely that the retailers jacked up the prices since there are no other alternatives.
I think you would likely pay just as much for upgrading this as you could spend to just buy a new setup that would work 10x or 20x better.
You could get this thing for $80
http://www.newegg.com/Product/Product.aspx?Item=N82E16813121399&nm_mc=OTC-Froogle&cm_mmc=OTC-Froogle-_-Motherboard+/+CPU+/+VGA+Sets-_-Intel-_-13121399
And 2x 2 GBs of RAM for $50
http://www.newegg.com/Product/Product.aspx?Item=N82E16820148160
and for $130 you would have a full low end backbone with processor, ram, motherboard, and graphics.
The processor would be 1.6 ghz, the RAM would be 8x as much and 800 MHZ, the video card would be GMA 3150. Basically, it would be a large step up everywhere.
It would load XP and the child would have a very much better time trying to do homework on it or play flash games or listen to Pandora music or whatever they are trying to do.
I think the same $130 poured into life support for the DELL is going to buy you a whole lot less improvement.
If you have more money than that, things only get better from there, but I think to get improvement that matters in 2012 will require at least $130.
- Edit - I suppose you could shave the ram to 2x 1 GBs for $30 instead of $50 which would cut the price to $110. I have never suggested 2x 1GB to anyone before even for ultra budgets and I can't feel good about doing it now, but it is an option on the table. For applications where 4GB is possible, I generally advise that as the bare minimum. I think that 2012 really wants 4GBs or more in 99.9% of cases, but I could understand dropping to 2x 1 GBs with the Atom processor setup from above.
I would shed a tear if you were interested in going that route, but if so then get this RAM
http://www.newegg.com/Product/Product.aspx?Item=N82E16820148163&Tpk=CT2KIT12864AA800
instead of the one that I linked above.