1)Only you can answer that. Had I had that configuration, I would have upgraded long back.
2)Definitely not. I wouldn't buy D805 personally unless I had an extremely small budget, then I might have. But I would never go from 1gb to 512mb RAM.
3)I wouldn't recommend you to use any of your current hardware maybe except your HDDs especially if they are SATA and perform fully well, and your pinnacle as well. However I recommend you to change your HDDs as well as it will barely take around Rs.1500 - 2000 only.
4)After selling your current PC parts, you should have 30k+ to build your PC. In this budget you can't get a gaming PC but I will try to come as close as possible.
5)Don't wait for Dx10 unless you will upgrade only after another 2.5-3yrs or more after this.
6)Please don't get confused if somebody refers to a card as Geforce 4 series. Geforce 4 MX 440 and all were mainstream while Ti was highend. You just can't compare, it is like comparing a 4k card with a 25k card!
7)For latest games of today, anything less than a geforce 6600 is practically crap in games like GRAW and Oblivion, this too for low settings. A geforce 6200 is the bare bare minimum if you want to play the most intensive of todays games at lowest possible settings.
8)Don't expect geforce 7 to do miracales, within another 6-9 months you will find the geforce 7600GT playing some games at 800*600 low to med for best performance. Anything below a 7600GT isn't that good in the geforce 7 series, geforce 7600GS is only a little better than the 6600GT which is a very very weak card now. The only card that comes after the 7600GT is 7300GT GDDR3 which you may not even find in India.
9)The closest performer to 6800GT from geforce 7 series is geforce 7600GT which is definetely better. If a card which was high end in 2004 mid has now come down to a level when it can't play games at max settings even at 10X7, what to talk of current mainstream and low end cards. 6800GT will end up playing games like GRAW at 10X7 Med at the very most, and maybe a little better for oblivion.
10)No onboard video can play the most intensive games at medium settings and I doubt whether it would do well even for low to med. Please mention the games and FPS and rest of the hardware as well.
11)Core 2 Duo is not in your budget if you want to game.
12)All newer cards are not going to be better than older ones. Usually the upper mainstream of the newer gen replaces the king of the previous gen normally and the low end of the newer ones replace the previous lower mainstreams. However keep in mind that initially low end card may be as expensive as 7-8k or more. Geforce 6800 > 7300GS and all that crap and it should compete a 7600GS and may beat it once unlocked. At stock 6600GT should at the moment usually come close.
Now let us design your PC. First let us decide the components which will be constant throughout and can't change.
HDD: Seagate SATA II NCQ 160GB - Rs.3000
Cabinet: Generic ATX cabinet with enough room and ventilation - Rs.1000 +-
PSU: Cooler Master 430 watts - Rs.2000 hopefully
Total - Rs.6000 approx
I expect that you are retaining all DVD RW, Combo and even FDD drives.
Now, all other components are not fixed except the GPU if you plan to do mainly gaming.
Case 1
AMD 64 3200 Venice s939 - Rs.4000+
Foxconn nforce 4 without onboard video, hopefully you might do 2.3GHz, but check the reviews first - Rs.2000+
2 X 512MB DDR 400 Transcend - Rs.4500+
Total - Rs.11000 approx
So, you have about Rs.17000 for all your components except your GPU. This means about Rs.13000 for the GPU. Now you can either, spend about another 1-2k to get 7900GS or you can get X1800GTO and spend the remaining 1-2k else where.
OR
You can get a 7600GT and in the rest 3k get Asus A8N E instead of the Foxconn by adding another Rs.500.
Case 2
AMD 64 3200 AM2 - Rs.4000+
Asus M2N E, please check its overclockability, and compatibilty, stability etc, also keep in mind it has issues so get them checked first. - Rs.5500
2 X 512MB DDR2 667 Transcend/Corsair Value(if supported, please check mobo-RAM compatibility for any system before buying) - Rs.4000-4500
GPU: 7600GT - Rs.10000 +-
Case 3
Intel Core 2 Duo - E6300/6400 (9k/10.5k)
965 based motherboard in the range of 6-8k which are overclockable and good, check among Gigabyte, MSI and Asus preferably. Consider 965 DS3 Gigabyte and MSI Neo F 965(FSB limit at 333)
RAM - same as suggested above
GPU - Geforce 7600GT, this won't be as good a system at the moment for gaming, however it will be much better for general purposes and will be more future proof and you can upgrade your GPU few months down the line as prices decrease.
Case 4
Replace the AMD 64 3200 with X2 3600(256kb X 2 L2 cache) - 7k or X2 3800 (512 X 2 L2 cache) - 8.5k
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