i dont suggest u upgrade your cpu as u have an agp 8x card and all the new procc have mobos designed for them which use pci express and if u try buying a socket 478 3.0 ghz intel it wont be in your budget. instead do this,
keep the same procc
get an asus p4c800 series board (intel 875p chipset) - around 6,000/-
Hitachi 80 GB SATA 2 HDD - around 3500/-
i am suggesting a sata 2 hdd as its backward compatible with sata 1 and atleast it will be future proof.