Yes, the system is starting to get old. I have the same CPU and GPU as you but 4G RAM, and W7
check also this thread, maybe raising the RAM availability to 3GB for applications will help you, not sure though.
http://forums.eagle.ru/showthread.php?t=67939.
About upgrading: Yes, I would (and myself will hopefully this year..) upgrade everything: CPU, GPU, motherboard, RAM and go for win 7 X64.