There's a difference between a system being handle a program and a system being able to perform well while running said program.
Like I said before, your hard drives could use an update. 8MB cache is VERY slow. You should notice a difference upgrading to a 32. I would personally go for a 64. The higher cache, the more seamless data streaming you get.
I would also go for Win7 x64 and a slightly newer graphics card. Your's is fine. But if you really believe it's your graphics card, upgrade. Even the latest ones aren't that expensive.