Garfield I don't have an Xbox or PS3 so don't really have much to say on that platform except that software developers don't have worry about how to optimize their hardware. So from a sound and graphics perspective they should be able to get the most out of your Xbox.
In PC gaming that is not the case and the performance for a given hardware level is less than what it could be. In my own experience what has made by far the biggest difference is upgrading my graphics card. I have an Nvidia 8800 gt. It is a big step up, performance wise from the 8600. The 8800 gt has gone through two new iterations the first being the 9800 gt and now the 250. It is basically the same card with three names. I looked on the US new egg site (so as not to confuse you with Canadian prices) and saw that a 9800 gt can be had for a little over $100. This card will kick ass on most games. Others have mentioned that an ATI 4850 or 4870 are great cards and all the reviewers seem to agree. A 4850 can be found for about the same price point as the 9800 gt and I believe offers similar performance. I have personally had driver issues with ATI cards so prefer Nvidia.
Garfield make sure that your case has room for the card you want, as some of them are quite large and have trouble fitting in a standard case.
I would next consider upgrading the processor. Most games don't take advantage of more than one core at the moment. So clock speed is the bigger issue right now. This will change but when? You can get a much faster core 2 duo Intel 775 chip for under $200.
Good luck,
Foe
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