Service packs overcome the 127gig size limitations usually, worst case just partition the hard drive to a size it can handle if it does play up, but the system should be OK with service packs loaded I’d of thought.
But upgrading is definitely worth considering, BUT, be aware that it may cost more than you hope, it depends on what you have currently, and that is the greatest influence on what you will need to upgrade, as mentioned above, more often than not new CPU’s need new boards as socket types are always changing, but there are times where higher spec CPU’s are released for the same board, but with the big jump in technology from you’re system you will definitely need a new board to go with the CPU.
The next thing is RAM, this can often last few numerous upgrades, but when there is a big jump in technology from what you have, you will almost certainly need new RAM as well, DDR3 is the newest, your board probably has DDR.
Most of the time this is all you need to get in an update, but it depends on what you have, the case makes a large difference to the cooling, newer systems are higher performance than you have, so good cooling is important, if your case has this then that should be fine, if not a new case wouldn’t hurt, more so if you get a new video card, some of these are massive.
The PSU is another big factor, newer systems often require more power, more so if you use high end graphics cards, so take notice of the PSU, and note the make\model, then see what power it supply’s, then check a caculator to see if it’s man enough, because when they fail, they can take the entire system with it, so don’t skimp on the power, it will cost more in the long run, and when getting one, always get more than you need, eg if it says 400w, go for 600w + as it will last much longer as it wont be working flat out all the time, and get a good name, this is the heart of your system, so get the best make\model you can.
Graphics cards last the longest usually, PCI-e cards have been the norm for quite a while now, so you should be able to continue using what you have there, but if it isn’t a PCI-e card then you will need to upgrade that as well, but it should be fine, hope this helps a bit.