Ahh!!! my friend had a Acer laptop that was very similarly configured !!
He was initially running XP with 1GB of RAM, and damn system was *** slow!!
He then later upgraded to 2GB RAM, and did a clean
install of Windows7 32bit. The difference was surprising. Its now much much more responsive and faster
I strongly advise against upgrading ur CPU. Try to get 3GB ram if possible, Windows7 loves RAM:)