Edit: When I first wrote this post, I assumed you meant you had a P4 when you said "1.2GHz CPU". But then I realized this could be the clock speed of a more recent AMD processor. Trotter makes a good suggestion-- identify the socket of your motherboard. Perhaps you can upgrade, in contrast to what I originally posted. I'm thinking 754 at best, though-- and you won't find one of those processors brand new unless it's from a liquidation store.
I'm no expert, but I think you'll find that the general consensus is that these are the picks for a cost-conscious gaming machine right now:
- AMD Athlon 64 3700+ ($230)
- Nvidia 7600-series videocard (starts @ $110, $170 for the GT version of the card)
- Asus A8N-series motherboard (starts @ $60)
The processor you could go as low on as a 3000+ (only $110), but it won't have the longevity of the 3700+. I guess it's a value call, and one that the forum experts can make better than I. All depends on how much money you have to spend.
But as you can see, you're already looking at $280 minimum for the core components. And you could easily spend $500. You still have to get RAM (1GB at least, 2 would be best), a hard drive, optical drive(s), power supply, and a case. Which is, conservatively, another $300.
So a total of $500 really isn't a lot to spend if you want a computer that will run current games very well, and that will also hold up a ways into the future. But even the cheapest gaming system you can put together for $600 will kick the pants off what you have currently. And don't bother considering upgrading-- you just can't do it. You have to upgrade all your core components. If you don't want to keep your current computer, you can always re-use hard drives and optical drives, though-- which might save you a little money.
I'm in a similar position to you-- going from a P4 1.5GHz/Radeon 9800 to a used system, 3200+/Nvidia 7800GT. It's not the best out there anymore, but it's going to blow my old P4's socks off.
Good luck!