IMO, it's usually not worth it to pay for factory overclock on stuff. It doesn't seem to be as bad now, but back around the time the original 8800gts/gtx released, they were having real problems with oem's pushing the cards too close to the wire, and as a result, quite a few cards got out into the streets that wouldn't actually pass muster coming through the gate, with the factory overclock in place. Aka the cards failed when trying to use them in gaming systems. Bluescreens, artifacts, you name it.
Besides which, the performance difference really isn't that much. A few percent, usually.
If you really want to overclock, buy a stock card, and do it yourself, and realize the benefits (less cost, faster performance). The software is very very easy to use. And it's free.
My current recommendation given your existing hardware, at a quick glance I'd say try to pick up a stock 8800gt with 512 megs of ram. Don't go for the 256's, the performance drops in games that use even a moderate amount (in this day and age) of textures. Worse still if it uses a LOT of textures. Also, you'll have problems with higher resolutions/antialiasing. 512 megs is the sweet spot. No more, no less.
You might also check some comparitive reviews, etc, for equivalent cards... 3870, 9600, etc. It just depends on what you want to play with.
As for bottlenecking.. yeah, you'll get some. But it won't be completely choked. Your current cpu is dual-core, which is a nice help, in and of itself... it lets the OS use one core for background tasks when the other cpu is pegged out playing your latest games.. makes stuff like disk loads, etc, more smooth and 'in the background' as opposed to "Loading, please waaaaaaaaiiiiiiittttttt...." *shudders*
As for the rest of the system, you mentioned 2 gigs of ram. You didn't mention OS, so I'm going to assume Windows XP... in which case you've got enough ram, and XP can only handle 3 gigs or so without hassle anyways.
I will say, if you end up deciding you want to upgrade the cpu... dont know what your budget is, but consider upgrading board/cpu/ram as a package. If you do, my personal recommend is to stick with DDR-2 atm, as the price is still nice and low (but will generally be trending upwards from here on, I assume... DDR3 is coming, and Nehalem is due next year. Once it hits, DDR2 is finished, it will start getting less and less manufacturing time, and the price will continue to climb.
It's all about budget in the end. How much do you want to spend? A little? (250$ or less?) Get the new card and be happy. A moderate amount? 500$ say... start eyeing the heart transplant. 750$ and up easily buys you the heart transplant and the new kidney (8800gt style)
I recently picked up a q6600 2.4 ghz, a 780i evga motherboard, and 8 gigs of ddr2/800 for like 750$, total. And no, you don't need that much horsepower to run the latest and greatest. Windows XP, a nice dual core, and 2-3 gigs ram makes for a nice gaming platform. Moreso when you throw a pair of 8800 series on it in SLI. In fact, it could be argued that having the paired vid cards does more to smooth out games than pretty much anything else.
For a little cost effectiveness advice on the cpu... check which cpu is the cheapest with a given amount of cache... 2, 4 6 megs, etc. Overall clock speed is important, but the onboard cache makes a difference... aka, more is better. Aka, eyeball the new dual core wolfdales and see where your sweet spot lies at. (assuming they're in your price range). Same advice if you go with a different cpu. Anything from 2 ghz on up will do you in good stead. 2.4 GHz core2's are extremely popular because they overclock like a dream. See my info below on my q6600 that I bought. I literally don't have to do anything except change the multiplier in the bios, and bump the fsb on the motherboard, and it runs 3.2 ghz. no changes to any voltages, nothing. I can't stabilize it at 3.6 yet, but I wasn't thinking when I installed it, and I need to check the paste job I did, and after that, I may have to goose a couple of the voltages... if I bother. 3.2 ghz is extremely fast as it is. Not sure it's worth it to push the chip that much.
Cost effectiveness on memory... PROVIDED YOUR OS SUPPORTS ALL THE MEMORY YOU THROW AT IT... more, is better than faster. Fast ram is nice... as long as you have enough of it. Makes sure you have enough first, THEN start eyeing faster ram sticks. My 8 gigs of plain jane ddr-2/800 goes a LOOONG way running linux 64bit. And it was dirt freakin cheap. I like Corsair myself. Opinions vary. You might check if your choice of motherboard has a recommended ram list on the manufacturer website before decided on ram choice.
My personal argument on memory... buy as much as you can afford (again, with OS choice being kept in mind in terms of memory support). DDR2 in particular, is so cheap right now, it's inexcusable to skimp. I could be convinced to bring my processor choice down to a lower model, in favor of making sure the system memory were as large as possible.
Cost effectiveness on motherboard... hmm. tougher there. My general opinion is, buy a damned nice motherboard, if you have to choose where you spend your money. You can always buy half the memory up front, and add another set of sticks later. Asus is nice. Evga is nice. Gigabyte is nice. Foxconn is nice too (they make all the evga/xfx/etc boards for them anyways) MSI is nice. Oh yeah, and DFI. If you plan to overclock, keep an eye out for boards with all solid capacitors.
Last caveat. Be forewarned that if you choose to go with the new mb/cpu/ram, you'll probably end up having to look at a new PSU to go with it, so keep that in mind.
Oh yeah. Back to the beginning. Your current system is not crap... but if your cache on that cpu is only 512k per core for the L2 cache... between that and it being an older core, it's probably costing you some frames, even with the 7600. If it's socket AM2, you could consider replacing it. If it's socket 939, I wouldn't bother.