Great advice from Proximon and xthekidx above. I'll just add a different angle.
😉
First, if you want to go i7, you can actually squeeze that into your budget. I'd go with xthekidx's build, with slight modification:
Mobo: Asus P6T, $299
CPU: i7 920, $369
RAM: G.Skill Pi CL8 (
LINK), $220
Heatsink: Scythe Mugen 2, $47
HDD: WD Caviar Black 640GB, $90
Thermal Paste: Arctic Cooling MX-2, $10
Total
CAD$1035 before 5% taxes and shipping.
I've priced off NCIX.com's current sale, and they only charge GST and not PST when shipping to Ontario. Given that all of the items that you need to buy are rather compact and ship well, I think that this is another reasonable way to save money. I think that if you do it this way, then you can come in below your original CAD$1300 budget for sure.
I think that if you go this route, then you'd be going with incremental upgrades, so these are the only parts that you need to buy right now--reuse everything else (yup, including your 32-bit XP and optical drive). Upgrade everything else incrementally and buy Windows 7 when it comes out later this year instead.
An alternative route that has not been suggested is to build around:
CPU: E5200, $88
Mobo: Gigabyte EP45-DS3L, ~$105
Heatsink: Xigmatek HDT-S1283 & Thermalright LGA 775 Bolt-Thru kit, $47.34
Other parts the same as listed above.
While not an ideal build, it only costs you $560, or *half* your budget. And a highly OC'd E5200 is pretty decent for pure gaming.
Now the reason that I suggest this second build is that your games aren't that intensive and I think that you could do just fine with this much cheaper build. This way, you spend a small amount to play your current games well and some future ones too, bank some cash, and then do a complete overhaul down the line. And it addresses your question of "when is a good time to buy?" by only buying what you need and not trying to futureproof too much.