Core Duo 2 is definitely the way to go
You'll also see AM2 prices slashed, even if it doesn't turn out to be any good.
Looking at your answers:
1. Definitely get a dual core!
2. Something like a 6800GS should be enough
3. If that's all you want then thats fine for that budget we should have fun
4. Is that included in your 1000$ budget?
5. Nice one!