Forgot the DVD burner, here is my preferred.
Pioneer 18X DVD±R DVD Burner Black E-IDE/ATAPI Model DVR-112D - OEM
Item #: N82E16827129007
Return Policy: Standard Return Policy $29.99
That system is under $500 without HDD, OS, or graphics card.
One the gatweway system what kind of upgrades are you thinking of? Sorry if I missed it. It has a PCIe x16 port so you can put in whatever graphics card you want.
On Vista, I have used it and liked it, but the performance hit you get can be crippling in some apps like gaming, and there are still some compatibility and DRM problems.
If you stick with XP you won't get to use DX10, so you won't get that greatest 3D effects, but you may not be able to afford the hardware to notice it. A great DX9 card is at least $100 cheaper than a DX10 card.
Also, when you are looking at just the processor, it seems like it may not be cost effective to upgrade the processor, but when you look at system cost and the performance of the system overall, it balances out more.
Look at the CPU charts at
www.tomshardware.com The CPU affect just about every aspect of system performance. Even mundane tasks like burning and ripping CDs to tasks like 3D gaming performance. Spending 150$ for a process instead of 60$ seems steep. But spending $1090 on a system that multitasks better, uploads PT data faster, burns and rips discs quicker and allows your to run a game at full resolution vs $1000 for a system that doesn't perform as well and has degraded graphics performance doesn't seem like much. Especially if you are going to spend $150-$300 for a graphics card. Make sure you system can get the best out of the card.