In your case, Jaxilon, I'd recommend upgrading first to a 64-bit OS like Windows 7 in order to take advantage of the full 4 GB of memory at the same time as the memory on the video card. I would hazard a guess that you currently have around 3GB free under XP; the OS upgrade would give you 1GB extra available plus a full-sized video aperture.

The next upgrade would probably be memory because it's relatively cheap ($75 or so would give you 8GB). If you really want to keep the old system limping along, you might want to upgrade to a 4-core or 6-core processor (which may or may not require an upgrade, depending on your motherboard).

I'm running a Q6600 with 8GB running a dual-boot XP32/Win7x64 configuration (I have 2.5 GB available under XP and 8GB available under Win7). My upgrade options are somewhat limited because I'll have to upgrade the motherboard, processor, and memory all at once - $700+ for the combo I want. Probably a new power supply, too... I'll probably just end up buying a whole new box early next year when the Ivy Bridge processors come out, but that sort of thing usually ends up being $2500+.