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Yes, you need to upgrade (when don't you?), but it doesn't need to be to "something 256." The RAM has only a small impact on the performance of the card. My Radeon 9500 pro could have 12 million gigs of ram and it wouldn't be any faster.
Right now the best options I see in the mid-range category are the Geforce 6800 and the Radeon X800. I would go 6800 (that's likely what I'll be upgrading mine to soon) because it tends to score better in benchmarks, and it's similarly priced. You should be able to find them both for 150-200.
And have you looked at Lasereth's thread? Lots of good info in there.
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