512MB isn't crippling for FFXI. It may depend on what else you're running at the same time. I played on a Pentium 4 2Ghz with 512MB for several years, which worked fine. I did have reasonably decent video cards in it, first a GeForce Ti4400, then a 6800. While FFXI doesn't utilize the video card to the same extent that many PC titles do, it's still relatively important.
As a general statement, more RAM would be better. For FFXI in particular, I can say from experience that it's not necessary.
Lag is hard to say. FFXI suffers some because of network traffic limits. Even a shiny new gaming PC can still get lag with lots of people on-screen. It's not because the computer can't process it, it's because the server isn't feeding it enough data.
There are also things you can try turning off. Weather effects, particularly, can impact performance dramatically. On an older machine, you probably want to turn them off. Shadows, environmental animations, and so on are other possibilities.
The long and short of FFXI on PC is that it's a relatively bad port that the PC makes up for with power.
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I also bought this pc on ebay for 100 dollars. It's kind of old. I thought at the time it was a great deal. I think not so much anymore, not for gaming anyways. I don't know a lot about gaming computers but the guy who fixed my pc said it is not a gaming computer, though I play FF XI on it.
The main thing that's going to set a "gaming" PC apart from a more general purpose home or office computer is more robust video hardware, and the ability to support it. Mid/high level graphics cards use a lot of power, which means you tend to need a bigger power supply. Some cases may not allow better cards to fit. That sort of thing.
There may be better picks for exactly what CPU to use, and more enthusiast oriented performance tweaks/parts, but, predominately, the video hardware is what will determine if the PC runs games well or not.
If you know people that are more into computers, ask if they have old parts or are planning to upgrade soon. I've given plenty of hardware to friends over the years. Given the vintage of the stuff you're looking at someone just might have some extra RAM in their old P4 they'd give you.
Another route might be to go to a PC shop and ask. The machine you listed is likely a refurb or off-corporate-lease machine. I know the shop near me buys up surplus machines from the university and sells them at similar prices to what you've mentioned. A place like that might be able to toss in an old video card or something for a good price.
If you do want to get a system that's a bit more capable for gaming though, then you're better off just saving your money until you can get something a little better to start with. While not stellar, there have been decent builds in the $500-600 range that are able to play any game on the shelf today pretty well. Or if you don't really play much, you can get a brand-new Dell starting at $269 or so that'd do alright with FFXI.
Edited, May 11th 2010 5:24pm by Isiolia