If this is for gaming then your system will only play older games or games that have very low CPU/graphics requirements. The CPU/RAM/mobo will prevent you from playing the newer, graphics demanding stuff.
If its for older games or new games that have very low CPU/graphics reqs then you still need to add 1gb of RAM. That is where you start. Then buy a used (for super cheap) prior generation video card. I wouldn't spend more than $30 or $40 on a graphics card for that system. Frankly, I wouldn't bother upgrading the system at all, but I understand you have a strict budget.
This chart shows you where even the older generations of GPUs rank in performance: http://www.tomshardware.com/reviews/gaming-graphics-card-review,3107-7.html