Do I really need another gaming system?

Does anyone?
My DS gathers dust most of the time (Nintendogs was supposed to keep the fiance busy but hasn't worked well so far), the OG XBox is now returned to it's proper corner since the 360 is fixed and the real topic of this post, my PC, still would struggle to play Battlefield...1942!

This older desktop - P4 2.26gh, 768mb ddr ram, 1 80gb hdd, 1 320gb hdd (not installed yet, also pata) an ati 8500le, big tower case, etc. - has served me well. It's also noisy, getting slow and now that I'm trying to use it in a bedroom as a DVR, is really starting to show it's age (at 3yo+, this thing is ancient! haha).

It works fine for surfing the web...but then that's why I have my laptop.

What in the world do I really want to do with this desktop?
What would you do?

The real cause of the dilemma is Intel's Core2Duos - being so cheap, I keep thinking I might as well upgrade. You can get a 4300 that will oc to 3.0ghz for just over $100! I can't even find a faster P4 socket 478 replacement for my board for that price, haha.

So the question is, do I gut what I have now, but use an cheaper stand-in motherboard (so i can keep my IDE devices, agp card, ram, etc) and pair that with the 4300 for under $200?
Or should I go ahead and get a new mobo, ddr2 ram, processor and video card for $4-500? Then I can play some newer PC games and dream about running Crysis on the lowest settings when it comes out (heck, screw Crysis, I've never even played FarCry).

I just dont' want to spend $200, then in 6months spend another 400 to get the parts that I really want (the newer ram, new video card, etc).

All in all, I don't really want to spend that much (I have a dvr already, not like I'm using this as my main HTPC), so maybe I'm better off going the cheap route.

If you've built a pc for under $1000 lately, I'd be curious to see what you did/chose and why.