Hi phluxy,
Oh, the old upgrade or buy new question - a question repeated many times since Emethyrius pondered whether to have his chalkboard repolished or buy some of that new fangled papyrus stuff ! So here's my dollar's worth....
Not sure what you mean by 'will it do H.264' - this is an encoding format for video compression. If you are thinking of doing any file compression, from AAC in iTunes to mpeg2 for making DVDs, then you will need a G4 - it's the Altivec Velocity engine on the G4 which speeds up all these processes and your G3 does not and will not have one - my iTunes CD importing went from 1-3x speed to 6-9x speed and an encode of 50 minutes of DV footage to DVD went down from 4 DAYS to 8 hours when I fitted my Daystar G4 600 mhz processor (which is what I would recommend you look at especially as it's only $179.) If you go for the faster speed G4 you will lose a third of your bus speed (100 down to 66mhz). If you were considering the faster G3 upgrades don't forget they do not have the AltiVec engine.
With a faster graphics card (go for the Ati Radeon 9200 Mac Edition) Halo should be playable.
As for the visual effects, Quartz extreme and core image are disabled for all pci graphics card, so you'll not get any of the 'visual effects' like the rotating cube. Widgets won't load faster - they're still as sluggish as a slug on mogadon and IMHO just about as useful. There is a hack which enables these facilities with a pci card, but there is a distinct possibility that it can also make your whole system very unstable.
Also, do you fancy the challenge of making your machine just that little bit better ?
I've fitted a Daystar 600mhz G4 processor upgrade, 1gb ram (which if you haven't done, do so now - it will give your system a real performance boost and ram is cheap as chips), an internal Pioneer DVD 109 burner, a 250mb Zip drive, an ATA 133 pci card which runs the three hard drives I've fitted (200gb, 160gb and 60gb - I'm a video editor and all that space does get used up !!), an ATi Radeon 9200, firewire 800 and USB 2 pci cards - all into a rev 2 Blue and White G3 which although it is not a Dual G5, it does Photoshop, Painter, Final Cut Pro, DVD and CD encoding, and a whole host of other things much quicker than when it was a humble G3 and, it was a whole lot of fun doing it all. It feels faster and is definitely more responsive and 'perky'. Also it didn't cost me that much - most of the upgrades were purchased on ebay for a lot less than their new price - however as I'm assuming you live in the states you have a much bigger selection of options and at MUCH lower prices than we have here in the UK.
Anyway, I'm glad I did mine as I know it will now last me until I can either afford one of the last Octet-processor G5's or until the MacIntel's have settled down !
Enjoy your dilemma-hope this has been some food for thought.
Cheers
Rob C