I'm not sure if this has changed, but I would stay away from the Windows XP 64bit edition because of the lack of drivers.
As for the processor, I would say yes, because the Athlon64 3500+ is (rougly) the equivalent to a 3.5 GHz Pentium 4 (the 64 bit processing won't make a bit of difference in gaming, but that's a nice plus).
I'd say you've got a pretty nice system there, but I would really consider bumping up the video card and PSU if your going to be doing some serious gaming.
You can ask the store for an equipvalent mobo with no onboard Video.
Get a top of the line video card, not necessarily the newest line but stay with the top. I had my 9800Pro for ~150 and it's really good for the money. With ~250 you can get one of those nVidia 6800 which is much better than that x600. (they have x700, x800 and even x850, in case you don't know).
If you can have some money back don't get those generic keyboard ad mouse. These are what you really interfacing with everyday (not the CPU or RAM..) so you've gotta get ones that you feel comfortable with. Go to Fry's or Bestbuy, you won't regret it, it will make you want to work, or play with your computer more..
Also upgrade Soundcard to at least SBlaster Audigy. It's not that much expensive. SBlive is just too old and will be too weak to drive a good speaker system or even headphones.
Also get a decent set of speakers. Klipsch makes good speaker system or go with a decent pair of headphones (Sennheiser HD550 - do not get the hd570 even it's much cheaper) if you want to keep the cost low. Well, if you're in no way an audiophile then ignore this and the soundcard remark.