well that's weird. with GTX460 the configs are 768MB or 1GB. the only cards with 1.2GB that i know of is GTX470 and GTX570 because of their memory interface (320 bit). btw your RAM only 3.25GB usable because you're using 32 bit OS.
as for the upgrade look no lower than 660Ti or 7870 but they do cost more than USD200
I only got this problem when i got my puter back it used to be 4 gb ( i was banned for like couple weeks ) and i opened it and it was 4 gb (2 usable) but then i moved it around and try install new bios and everything then it went up to 3.25 gb and im just fine with it I'm planning to get more rams anyway so that should be fine
You will need at the least a 660 or a 7850 to be worth the cost to upgrade over just about any 460/560. Even more so if yours is a good overclocker, mine hits around 850 on stock volts and 930 so far with max volts.