Half Life 2 and Doom 3 run perfectly happily on my laptop, which has a lesser graphics card. The 5500 is actually a reasonably good card, it just wasn't cost effective compared to the radeon 9800 pro.
And if Halo 1 is anything to go by, not even SLI'd 6800's would do the job.
For the upgrades, you're not going to find them particularly cheaply. The best way to go, at the moment, is propably a Sempron 3100+, Socket 754 Motherboard and a stick of DDR2700/3200.