I have a very similar setup. (Dell Vostro 1500 that I bought in 06 or 07, I think 06). It has a Core 2 Duo T7300 (2ghz I think, and I use a free program called ThrottleStop to push that to 2.2ghz). I have upgraded the ram to 4GB, and my 8600m GT is the 256mb DDR2 variant. I also upgraded to a 7200rpm HDD a few years back. About a year ago my GPU finally croaked (I had been 'baking' it in the oven when it failed on me previously, but this became a tedious task to do every 6 months or so, since removing/replacing the GPU requires you to crack open the whole laptop). I replaced it with the same model for $30 from ebay, and have overclocked it a small bit for better performance. My native screen res is 1280x800.
In my personal experience, this setup will still game. The low native res is what really makes this possible. I can play Skyrim on this laptop at a combination of medium-low settings at native res with very little issue. I played the campaign for Starcraft II without issue (can't remember exact settings, but they were medium I think). I can't recall a game that I absolutely could not play on it. I had to set Metro 2033 to ultra low, or bump the res to below native to play it, but that's about it. You may try doing a system wipe and starting fresh. I know on mine I ended up using a Dox nVidia driver from here (http://forums.laptopvideo2go.com/forum/ ... -releases/
) and turned off powermizer and other throttling settings.
Use the above tools at your own risk, it will cause your laptop to generate more heat, but if the vents aren't blocked then things shouldn't get to nuclear meltdown range.