It should be able to handle that size display (remember that Apple's first wide screen LCD display was introduced with the original G4s... using that graphics card).
Still, more video memory never hurts. But I thing in your case I would put it after a new drive and memory... and maybe even after a processor upgrade on my list of things to do.
When looking at processor upgrade you should keep in mind what you want to do with your system in the end. For example, not all apps take advantage of dual processors. But if you use a lot of different apps for your work, Mac OS X will spread them out over two processors (or four) so that no one app can slow down the others. But if you are a single task type of person and your main app doesn't use multiple processors, a very fast single processor would be the best "bang for your buck".
I usually sit down with my clients and discuss what they know they want to do and what they may want to do in the future before giving recommendations on upgrades.