Both sides of the argument are correct actually... On the one hand it makes no sense at all to sink a lot of money into an AGP card.
But your system isn't so old it's useless either. It's sort of a toss up as to whether it makes sense to upgrade the AGP card or upgrade the whole thing.
Here is what I would do though:
Buy an Asrock775dualVSTA socket 775 or comparable motherboard for around $35. I paid $25 open box from newegg but I think they are out of them now. They're available elsewhere and all over ebay brand new in box from reputable sellers.
Or newer boards would run you more like $60 on the low end but that Asrock is an ok socket 775 board at that price, hell, I couldn't turn it down.
Now take that board and drop in a new e2140. The dual core allendale core2 chip with less cache than normal core2's. It's $75 right now....http://www.newegg.com/Product/Produc...82E16819116037
Ok now you're way up there in the $100 range.
Pony up a whopping $18 ea for a pair of ddr2 667 512M chips so you are in dual channel speed land OR reuse the ram you have in your current system. (It can take DDR or DDR2) and you're in business with a system that will OC with just the change of the front side bus speed to levels easily in the middle range of the full core2 systems and probably around twice as fast as what you have now not counting what you would get if you overclock this setup.
You'll reach right around 2.66ghz or so if you do OC and it'll still be cool as a cucumber. It takes changing one setting in the bios, FSB from 200 to 266, save and exit and you are done. No fiddling.
That is only $100 to $140 to get over double the speed of your old system.
Also... that Asrock board will take AGP OR PCIe video cards. As a matter of fact it will take BOTH at the SAME TIME.
This is not even considering you can sell off your old parts too, so the upgrade could actually cost you close to nothing, and then you can jump on the regular PCIe video cards or reuse an AGP you have now, up to you. AGP cards have a premium added to them now, often the same speed card in PCIe form can be quite a bit less.
I use a 9800pro on my system, but I sprung for an e4300 core2. With my OC to 2.66ghz and software decoding I have no trouble with anything.
Spend here, or spend there... Up to you.