There's a reason that you get chop immediately when you enter town, or exit out of an inn; it's loading the zone and all the information therein. I get a 2 second "hang" when I pop out of the inn in Thelsamar and I have a 6800GT, a gig of RAM and a 3200+. If your play is stuttering just walking around, it's obviously hardware.
For video, I'd recommend NOT getting an nVidia 5x00 series board. Personally they aren't a good line of boards, they work, but I've heard of many problems with improper rendering and trouble with drivers (from the "driver people" no less). I would say go with an ATI 9600PRO or 9600XT, which can be had for ~$100 and ~$140 respectively. I really like the market positioning of the Geforce 6600 and 6600GT, but sadly, they're PCI-Xpress and wouldn't work for you. You could jump up to a 6800 vanilla, but that's a $250+ investment. Note to those about to jump on my back, check my rig: not an nVidia hater, remember why everyone went out and bought 9700/9800s? Yeah, because the 5x00 line wasn't what it should have been.
As for RAM, you can get a decent stick of 256MB PC3200 for about $35: Corsair Value Select, Buffalo Tech, etc... I would at the very least get a stick of 256MB or your rig. If you want to drop on 512MB stick to add, you're looking at a $70 investment. If you're running XP, it might be in your best interest to bump up over 512MB, but that's up to your discretion. 512MB is the minimum I recommend for any WinXP(gaming) system, it's a bit of a hog.
So, for a $140 or there abouts you can put yourself right back into the mainstream of performance again. If you have any further questions, feel free to ask! =)
Edit: sentence fragment!
Edited, Thu Dec 2 16:25:00 2004 by KrycisTemp