Cheap RAM is fine as long as you get it from a compatible maker....Kingston and Corsair are probably the best for compatibility. Anything frmo Kingston or Corsair should not go bad, provided you don't overclock it (and you shouldn't need to).
Your 2700+ AMD might be slow, but remember that your processor is almost double the speed of his. He really does need an upgrade. Also, there's no sense in getting an old AGP card as they are all overpriced. You can get a card a good 5-10x the speed of your 9200 for $150.
Upgrading his 4 year old computer will do no good. Spending $200 on a cheapo graphics card and 1GB of RAM will give him a small framerate boost while playing WoW and WC3, but the computer is otherwise obsolete and will not properly play any games released in the past 2 years. He will have to upgrade the next time he wants to play a game. Not to mention, even your 2700+ AMD, 9200 would not run WoW over 30fps most of the time.
Anyways, add an extra $400, and he'll have a computer that will be 12x as fast in games (I'm not even exagerating), and will last him another 4 years to come. The choice is pretty easy to me.
Let me put it this way.....would you spend $5,000 on a turbo for a 92' Tercel? Or would you rather spend 10-15k on a completely new car that will likely last you another decade.
Oh, and I'm recommending a nice budget system that will do very well at a $600 price point. I have a $1500 system, with a C2D E6600 and a 7950GT (though thats a generation old). Sure I could recommend something along the lines of the E6600 and an 8800GTS, but I realize you only need that if you are a big gaming enthusiast.
The E4300 and 8600GT offer incredible performance for the money.
Also MuZI, did you say you have a really bad 400W PSU? Well if it'll last you, go ahead and keep it. But if you need a new case and PSU, I'd recommend the Antec Sonata II or Sonata III (I think the III is out now). The Sonata II comes with a decent 450W power supply, which is plenty if you don't plan on going SLI (2 video cards). The case is about $90-$100 nowadays, so I think it's the best value out there. But like I said, if your current PSU is doing fine, don't worry about it. If it is giving you trouble and now providing enough power however, it's time to switch. If you don't need a new case, then Enermax, Corsair, and Seasonic are probably the best power supply manufacturers out there, so go ahead and pick up a 450W-600W power supply. The 600W is only if ever you plan on getting a higher end gaming card for example, as a 450W might be cutting it close. It would do fine for mid-range cards like the 8600gt however.