Best OS Upgrade I can successfully install?

Hello and hope you can help!
Have been the proud owner of an iMac for....maybe 8 years now and during that time it has been ROCK SOLID (THANK YOU APPLE!!)
The Mac details are as follows:-
  Model Name:
iMac
  Model Identifier:
iMac4,1
  Processor Name:
Intel Core Duo
  Processor Speed:
1.83 GHz
  Number Of Processors:
1
  Total Number Of Cores:
2
  L2 Cache (per processor):
2 MB
  Memory:
2 GB
  Bus Speed:
667 MHz
Of late we have noticed that the software that is present seems to be out of date as we get no updates from Apple, can't download the latest iTunes and have lost some features as a result, Firefox no longer produce up-dates that support our software verson etc.
As a .mac user I am also a little worried about losing access to services now the transfer to iCloud has taken place, with 10.4 I can't access the iCloud services, or it can but it appears to be limited alongside it's communication with our iPhones.
So question is can I upgrade this awesome machine to be a little more up to-date and what is the best route and how will it perform?
Or is the simple answer a new mac?
THANK YOU in advance for your support.

You can upgrade that computer to Mac OS X Snow Leopard. OS X Lion and Mountain Lion requires a 64-bit processor, and the Intel Core Duo is a 32-bit processor.
To upgrade to Snow Leopard, buy Snow Leopard > http://store.apple.com/us/product/MC573/mac-os-x-106-snow-leopard Then, make a backup of your data, insert the DVD and upgrade. The disc contains Mac OS X 10.6.3, so open  > Software Update to install the most recent version.
With 2 GB of memory, Snow Leopard should run fine, and your computer doesn't support more than 2 GB

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