Overclocking the e5200 isn't a bad idea, but I don't think I'd trust a 4 ghz one as a long term setup. I imagine it would require a fairly big voltage increase, right? That would put significant wear on the CPU. Low to mid 3s with a decent heatsink might be fine though. I also think that saying he can't move the processor any farther isn't entirely accurate, since there are quad cores available in LGA775 already. I think what you mean here is not to expect new LGA 775 models.
I'm well aware that computers almost always hit a GPU limit first, however, you can often mitigate the impact some by backing off the settings.
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My apologies, I do not understand what you mean.
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How do you intend to back your data on this machine up?