AMD CPU dilemma

[jumpy]

My pc is getting a bit long in the tooth.
I'm looking to squeeze a little more life out of it yet - I cannot afford a whole new computer anyway, so... upgrading is where I'm at:

XP Pro 32bit (retail)
2GB ram (x2 1GB matched corsair twinx ddr2 pc2-6400 c4 I think, will look at box)
nvidia GeForce 7950gt 512MB
AMD Athlon(tm) 64 X2 Dual Core Processor 3800+ 2009 MHz
Mobo ASUS M2N32-SLI DELUXE ACPI BIOS Revision 0406
plenty of HDD space


Upgrade CPU - best solution so far, but with one caveat: it has to be socket AM2 compatible.

Various sources online say that AMD has made their AM3 & AM3+ chips backward compatible to the AM2 mobo platform.
This means certain hyperthreadding things will not be taken advantage of, and DDR3 will not be of any use to me, but what I've researched so far seems to indicate that this might not be such a problem after all.

Can anyone confirm this?
Asus show a list of CPU types including AM3 CPU variants that would be compatible after a bios flash. Trouble is finding one that matches the manufacturer codes.
http://www.asus.com/Motherboards/AMD...I_Deluxe/#CPUS scroll about half way down the list to the athlon IIx2/3/4


The best and cheapest solution so far appears to be as follows:

Upgrade CPU to AM3 variant (either 3 or 4 core architecture @ 3+Ghz) of which there seems to be about a dozen to choose from.
Change OS to W7 to take advantage of greater RAM Capacity.
More RAM another matched pair of corsair Ram memory to take it up to 4 or 6GB (Corsair XMS2 4GB (2x2GB) DDR2 PC2-6400C5 TwinX Dual Channel for example to match what I have already).
Add a better gfx card at a later date.

Costs:
CPU ~ £50-90.
RAM - £50-60.
OS £130 REATIL or £80 OEM for home premium 64 bit

So about a couple of hundred quid to upgrade my machine to last a little bit longer vs a whole new computer at something in the range of £600 - £800 (which is about what I paid for my existing set up 6 or 8+ years ago).



Any of you technically minded bods look at the options, especially as regards the AM2/AM3 compatibility, and tell me what you think?

Critique my dilemma if you will.