If you ask me (which I'm fairly sure you wont), that machine is OK for most of today's games at moderate settings. The GeForce MX is a problem, though. 'Tis nothing more than a faster clocked GeForce2. If you want a bit of a good upgrade, get a 128MB (or even 256MB) 9600 XT, you can find them at most online retailers for less than $100. The rest of your system wouldn't help much for upgrading. You have enough RAM for what the rest of your machine can handle, so no point upgrading there. My machine is similar to yours (except with an FX5500), and I can get a rock solid 30FPS on Half-Life 2 at 1024x768x32 w/ 2xAA and high texture settings. Not the best picture in the world, but definately gets the job done.
As for buying a whole new rig, I wouldn't recommend it right now. DDR2 hasn't matured yet, Socket939 is being phased out, and new technologies are just around the corner. I figure your machine with a 9600XT would last another 6 months at least, so long as you don't push it too hard.