As stated by this topics title, I'm planning to build a new system as my current one is severely outdated. I'm keeping my CPU, power supply, hard drive and DVD drive however. I'm on a tight budget of about $300 - 400. Could anyone tell me if there are any incompatibilities present or potential issues I could be facing with this system?

2 DDR2 1G PC5300 667Mhz RAM
Albatron GeForce 8600GT 256MB PCI Express
Gigabyte GA-P35-DS3
500 W power supply
Pentium D 2.8
Seagate 150 GB Sata

The lack of operating system could be a problem.

The rest looks fine.

the OS is already installed on my Hard Drive as it is from an old system.

That's fine and dandy. but because you are making a drastic hardware change (new motherboard) you're going to have to reinstall the operating system or you may have problems. Granted, it may boot up and it may work, but the system may be unstable. The only way to guarantee problem free operation is to reinstall the operating system by doing a fresh install. IPs your CPU compatible with the new mobo? How about the RAM?

And of course in the eyes of microsoft, you MUST buy a new operating system as your hardware has significantly changed, ie motherboard. Its the 'law' !!!

That's not true. If the operating system license you've purchased is used on one computer at a time, you can use it over multiple configurations from the smallest change (mouse, keyboard, etc.) to the biggest ones (hard drives, motherboard, cpu, etc.). You don't have to buy a new one unless you're thinking about changing for a more recent one.

Sorry Didou, you are incorrect unless you are talking about a retail boxed licence. OEM has to live and die on the first machine its installed on. A major hardware change, ie. motherboard, cpu, even ram constitutes a new pc therefore you have to buy a new oem OS licence.
If its a retail licence, which costs more than double that of an oem, then you are allowed to install it on 'any one pc at a time', AND one portable pc provided its used by the primary user.

Yes in theory the OEM license should remain on one machine (the first one it was installed on) but I don't agree with such practice. To me, I should be allowed to use it on an upgraded machine or a new one provided it is the only system on which I'm running it.

I guess we'll have to agree to disagree on that matter as it seems we've talked about it before.

I think my Mobo is compatible with my CPU as my mobo has a LGA775 slot. However, as my ram is brandless (I'm buying it cheap from my local computer store) I can't be sure if it will be compatible. Doe anyone know if my mobo is particularly ram fussy or not?