What CPU do you have at the moment?
I have an X850xt PE at the moment on AGP. My next big upgrades going to have to be a change of motherboard to PCI-e. I have a 3200 venice running 2.6ghz (at 25degrees) on water and its fine at the moment, nothing seems to slow it down (bar 3D Mark, they always cook your machine).
As you said upgrade a bit at a time, but if you upgrade your DDR ram, your still going to have to go, motherboard, ram etc in the future as it all going to be DDR2 now anyway.
I'd leave it, and save for a board, graphics card etc all at once, then flog your old kit as a runner on Ebay or something. Maybe clock up your kit as it is to cope with the newer games.
Buying more 3200 ram won't really do a great deal to your machine, if your running it stock speed there is no real point in buying the really good stuff.
What spec is the machine at the moment then?
Dan