Will this Processor work with this mobo?

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You could actually go for a more-powerful AMD build for the same price.

But yes, those parts will work okay together.
 
For your budget, I recommend the GA-MA770-UD3, the Phenom II X2 550 and any 4GB DDR2 800MHz or 1066MHz kit from Crucial, Corsair, Kingston or OCZ, whichever is cheaper. You can get them all at http://www.ebuyer.com
 
You will need it to use all the RAM, yes. But since you're using XP, 2GB will be plenty too. You can probably spend the extra cash on a better CPU or something.

And here are links to my recommendations:

Slightly over-budget. You can compensate by getting the Phenom II X2 545 instead of the 550, but OCing will be better on the 550. If you're not going to do that, get the cheaper CPU.
 
Dj, a AM3 processor will work in an AM2+ board. a AM2+ processor however, will not work in a AM3 motherboard because of no DDR3 memory controller.
 
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