The old Pentium stuff isn't any good. You want a Core 2 processor, like maybe the E2180. It's about the same price as that Pentium D you mentioned... but lots better.
If you want a Sub-$60 Processor, you'd probably be better off going AMD.
Also, yeah, DDR2 is a little better than DDR1, and right now it's also cheaper. Any recent motherboard won't support DDR1 anyway.
You're going with 1.5GB of RAM? Seems like an odd number... I'd just get a 2x 1GB kit.
How much are you looking at spending in total?