Definitely go to 64 bit Windows and max out the DRAM. The Win7 installation key should work with either version - all you need is the 64-bit Win7 install media. Time is money, and even adding an SSD for use as a scratch/page drive on top of the extra memory would be advantageous for really big files. It would pay for itself rather quickly in terms of productivity alone.
BTW, unless Adobe has changed something since the last time I looked, if you are using the creative cloud version of Photoshop, I think the installer installs both 32 and 64 bit versions but then (stupidly) defaults all the file associations to launch 32 bit Photoshop by default even on 64 bit OSes. Which, unless you correct the issue, will defeat the purpose of going to 64 bit Windows -- definitely something you'd want to check after the OS conversion.