Since I do quite a bit encoding myself I say you need more processing power by either overclocking more or installing the E6600. The extra 2MB of cache alone will provide about a 10% increase in performance if you were to compare it to an E6400 of the same speed.
More RAM will help up to a certain point I suppose, but 1GB of it should be sufficient. I haven't notice much, if any, performance increase between 1GB and 2GB of RAM.
The GPU does not have any impact on encoding performance. Yes, ATI has what's called AVIVO for their cards that uses the GPU to do video encoding, but that is more or less proprietary. AVIVO is not compatible with any video encoding program. You can only use AVIVO through the ATI Catalyst Control Center and it provides you with very, very limited options. Worthless in my opinion, unless other commerical for freeware video encoding program can somehow make use of it.
The programs I use to encode are basically freeware stuff and they are not multi-threaded.