Not a bad system. The thing that would probably help the most in most games would be a newer video card.
Most games will run ok in that 128 after the paging is worked out, but another 128 would definatley help, not just in games but in general as well. If you play Diablo II, I'd definatley reccomend more memory, that game seems to hog it up more than any other, but most FPSs will do ok without.
And a larger HD would be nice, not just for the size, but also the speed.