Torque, as others have pointed out, you need to upgrade several components on your system. I'll list them in order of importance (from most to least
)
1. You need to upgrade your operating system. I would recommend the 64 bit version of Windows 7 Home Premium.
2. The reason I have a 64 bit OS as the #1 priortiy is that by upgrading, you can take advantage of more than 3GB of RAM--which will definitely benefit you in gaming (as well as general computer usage). As others have stated, 4 GB should be more than enough right now. You MIGHT be able to get by with 3GB and keep your Vista Home Basic 32 bit, but I wouldn't recommend it unless you just can't find room in your budget to upgrade to Windows 7. Also, as others have mentioned, Windows 7 is just better all around than Vista--not just for gaming, but for general usage as well.
3. You really need to upgrade to at least a dual core processor as was mentioned earlier. In fact, I would strongly recommend that you go with no less than a triple-core processor--preferably a quad core. I just don't see any point in buying a new processor now unless you go for at least 3 or 4 cores. You can get very good AMD triple core processors starting at $72, and a very good AMD quad core starting at around $90. GTA IV is a very CPU-dependent game--meaning that the quality of the gameplay/graphics are more dependent on the quality/speed of your processor than on the quality of your graphics card--it's usually the other way around. That game runs best with triple/quad core processors, although you could probably get by on a Core 2 Duo with a frequency of 3.0ghz or above. Also, if you were to upgrade your CPU/RAM/GPU, you might as well consider upgrading your motherboard as well.
4. Lastly, you could definitely stand to upgrade your graphics card. The 220 is more of a HTPC/Media Center graphics card, and is not really ideal for gaming at high resolutions. I'd recommend buying at least a ATI 5750, and preferably going with an ATI 5770 or above. The 5770 is a much better value currently, as it sells for only about $15 to $20 more than the 5750, and it offers significant performance improvements. If your monitor resolution is 1680x1050 or lower, the 5770 should perform very well for you in most games.
To summarize, in order to make these kind of upgrades you are looking at the following expenses:
$104 for Windows 7
$100 for 4GB of RAM
$70--$100 for CPU
$125--$155 for graphics card
You need to figure on spending at least $400--$460 to make the kind of upgrade you will need. And this is not factoring in the cost of a good motherboard (~$80--$100) or the cost of a reliable new power supply. A good 500 watt PSU should be enough, but you don't want to buy just any brand. You want to get at least a Tier 2 PSU. You could use this list as a guide:
http://www.eggxpert.com/forums/thread/323050.aspx Plan on spending at least $50--$60 for a good 500 watt from a brand like Corsair, Antec, or OCZ. Hope that helps.