Are you able to run the X1300 at all with Windows provided drivers?
If yes, leave it alone. You don't need to install the drivers off the disk, as Win7's will be more up-to-date.
If not, try the latest compatible drivers for Win7 directly from ATI - click here (32-bit version). Apparently Vista drivers will work with Win7, but Win7's own could be a better option.
The HD4850 will be compatible with your motherboard, but is a big step up (not to mention, expensive too). Check if your PSU will be up to the job - post its make & model & we'll let you know.
Btw, you could get away with a much lower-end card for a lot lower price. Apart from the driver issue, what is the upgrade for? Do you play any of the latest 3D games? G