It will not make much of a difference in performance, unless you have more than 4gb of RAM; you have 2gb. While Leo isn't a fan of 64-bit, I find that 64bit Windows 7 performs very well and I have had no driver issues on my two PCs that I've installed it on. If you are buying a new copy of Windows 7 I'd get a 64-bit copy, as you shouldn't have any problems and it is where the market is moving. It will also allow you to install more than 4gb of RAM if later desired. If you already have 32-bit Windows 7 I'd stick with that. Not worth the upgrade, unless you want to upgrade the RAM past 4gb.
Upgrading your hardware will do the most for you as far as improving performance. For the easiest performance boost I'd first recommend upgrading from 2gb of RAM to 4gb. Upgrading the hard drive to a faster one or a SSD could also make a big difference, although that could be costly and time consuming. A newer processor could also help, but I'd start with the RAM. For gaming a new video card will make a big difference as well. There are a lot of good video cards for ~$200 and less.
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