Consider going Intel.. the new Core-Duo processors absolutely ROCK.
I have the "entry level" Core-Duo E6300 (1.86MHZ) and a PCI-e 7900GS, 1024 textures, 1280X1024 resolution, MAX settings in game.. and I rarely see anything less than 60FPS.
If you're upgrading anyway, stay away from AGP... these are all but obsolete, and is not supported by ANYTHING new anymore.
When I last upgraded, I upgraded from an 2200XP AMD and went to a new motherboard ("economy" type), 2GB ram, 160GB SATA HD, AGP 6200 Nvidia video, and a DVD-ROM/CDRW "combo" drive for about $300. This was reusing my monitor, keyboard/mouse, power supply, XP Home, and case.
I upgraded to the 7900 GS about a month ago for just under $100, and went to a 600 Watt power supply for $50.
In your case, you can probably re-use the case, power supply (I wouldn't go any lower than 400Watt though), software, peripherals, drives, and any sound or network cards you use, and as a result you should be able to build something very nice for under $400. Your current video is extremely obsolete.