Online Gaming - What should I update?

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Hey, I have a computer thats 4-5 years old, It has a 64 mb vid card and 512 mb ram with a pentium 4 processor 1700 mhz processor.

Now im starting to play a game (WoW) and its an online massive multiplayer game, my performance is good but now that im doing special "quests" with like 40 other people cramped almost into a single spot it lags me up.

When I start killing stuff with the 40 other ppl cramped up in a spot, I lock up bad and can barely control what Im doing, so im basically just standing there waiting till its over. What can I change/add to my PC to fix this problem and have minimal to no lock ups?

I am currently on a budget, I dont want to buy something really expensive, just want to fix this problem. Oh, last question, if I reformat will this help? Thankyou.
 
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