Right, well yes, a faster processor would be great, but you'd have to look at the max processor the motherboard can handle first (should allow for a bit of a faster one), and if you wanted anything faster, I'm afraid you'd have to change that as well
As for the Video card, this would have to be an essential upgrade as that card wouldn't even pass as a real gaming card (very budget) and so a nice Geforce 6600GT would do you very nicely indeed (AGP, which you'll have so just replace the card)
A good processor can come under $100 (i'm english, but I think this is about right) and the 6600GT would cost around $200 so this would probably be the problem area, but you want a gaming machine and so this is the lowest I would choose to play games at high speed.
Do you know what I would do?
I'd keep that processor for the minute, and update the graphics card to the 6600GT (a good gaming card) and then see how things go.
If you then want a bit more speed (dont know how much a newer processor would help), you'd just have to save up for a new processor (shouldn't be that much more), though I think the processor you have will suffice for the moment to tell the truth, and so it is the graphics card which is the problem
Though look at your motherboard detials and tell us whats the max bus or CPU it could work with.
I hope this helps