The biggest issue with your system is that you're using the 32 bit version of Windows 7. So although you have 8 GB of RAM and 1 GB of video RAM, the 32 bit operating system only can use 4 GB of it. And 4 GB including your video memory is much too little for any bigger tasks these days.
The video card is also on the weak side, meaning you should minimize all eye candy for a smooth (-ish) gameplay.
So to unleash the full power of your system you'd have to reinstall Windows as a 64 bit version to start with. A better video card would also help, but only after the reinstalling.