1.25 to 2 gig RAM won't make that much of a difference. Will be pretty cheap though, just get another 1 gig stick and toss out the 256mb one. Should cost about 10-15 dollars. New laptop will be 20-30 times that even for a cheap one.
Get the RAM, install a clean version of Windows on the system, should be OK. If you are not doing any video editing, HD video, will be OK.