I recently did a video project for school on an almost identical system -- it had a Radeon 9600 rather than 9200. That system is just fine for video editing. You really don't need to do any upgrades. So what if you've got an old video card? See, many people think that a good video card is required for video editing. They're wrong. All that the video card does is outputs a display to your monitor or TV, and in cases such as yours, inputs from an external video source. The thing that's actually doing the editing in your case is the CPU.

The one thing you might consider getting if you have the money, is a nice DVD burner. They're getting cheaper and cheaper, and a DVD has video quality that's SO much higher than VCD you won't believe it.