If it were me, I wouldn't be sinking a single PENNY into trying to upgrade that system. The parts that would be required to upgrade it... well you'd basically need to build a new computer to even upgrade it.
Yes, you could put in a better video card, but your Power supply won't handle it so you'd need to upgrade that too... but it's probably a proprietary one... so you'll need to fork out big $$$ to buy the right size... or a new case. Then, you'll find that you'll be processor limited so you'll need to upgrade that.. but your motherboard won't support anything better... just not even worth it.
Do this... price out the following:
-Computer Case (don't need anything fancy)
-Power supply... I'd go 600-650w MINIMUM.... but 750w would be good without going crazy
-Motherboard/CPU... with the Intel I series, AMD prices have dropped. You can get a nice, fast AMD reasonably cheap these days.. no need for anything fancy for the motherboard... I wouldn't bother getting an SLI compatible one or anything.. I think I paid $70 for mine which supports C2D, C2Q (socket 775) intel processors and DDR3 ram.
-Video Card... Looks like ATI is the best bang for the buck right now. Make sure you compare the Power supply's specs with the video card's specs before purchasing
-RAM... I'd definitely go DDR3... but regardless make sure you get the correct type for your motherboard. I'd recommend at least 4 gigs.
You should be able to reuse your drives (CD/DVD, Floppy, Hard Drive) and maybe even the case fans, but those are cheap insurance. I doubt you're going to be able to use the operating system from your Dell with the new system, so make sure you budget that as well. I wouldn't waste money on 7 Ultimate though... Home premium has everything you need. Also you'll be fine with the 64bit version.
Can it be done for under $500? Yes...if you skimp... ALOT... BUT if you can manage to dig up another $200 you can get much, much better...
