The Intel Core 2 is still a good CPU, although it's starting to get old. Throwing in a GPU would be the way to go, without knowing what power PSU it has in it I'm not sure what to recommend. I'm thinking it's probably got their 325w PSU, so a 7750 would be good.
PSU are good for people to install when they just start working on computers. It's takes a good, i don't know 20 minutes, helps get you used to doing stuff in there. I think you'd probably be pretty happy with the 7750, but you could step up to a 7770 too if you want to buy a new PSU. My 7770 will max out WoW.