I'd guess from those specs that you have an AGP slot for a graphics card. My understanding is the 8X00 series is as good as it gets for AGP cards, with higher end Radeons being buggy. You're looking at almost a complete overhaul - new GPU, new CPU and new motherboard. You can keep your RAM, but you'll need to buy more to handle Windows 7 gaming.
As is, you've got a top spec Windows XP gaming rig, and you'd probably be spending at least $400 to upgrade, and you may or may not get a system that's significantly better than what you have right now.
I'd say hold off as long as you can, and in particular wait for RAM prices to come down. Alternatively you could sink some money into an SSD, which will improve your performance somewhat, and is something you'll be able to take with you to a more complete system upgrade.
Jacking up the RAM wouldn't hurt either, and you could always go on craigslist, buy old systems with RAM included, keep the RAM, and sell off the remaining parts individually to get yourself something like 4GB total RAM for a very minimal cost (aside from a time investment).