like others have said, go with with athlon 64 3000 or so and 1GB of ram, 2GB would be overkill. get decent ram -> OCZ, Crucial, Kingston and Mushkin are all good and have good support if you need them. don't get the generic ram.
get a decent 7200rpm 8MB 120GB HDD, no reason to spend the extra money on the sata 10k rpm raptors. sure they will help your load speed a a little, but that is all. don't do raid either, as others have stated -> performance increase isn't worth for what you are doing.
spend on the graphics card, like a x800, that is what is important for gaming.
as far as installation, i am assuming you will be using xp. it is bootable, so just configure your bios to boot from cd before the hdd. it is pretty easy from their, and you just follow the prompts.
as far as updating the bios, most new motherboards have a utility that will let you update the bios from within windows, so again, it will be pretty easy.
my rule of thumb is install os, then virus software, xp service pack and then any other drivers for items like sound and so forth.
don't go overbudget, 1200 for what you want is more than enough and remember what is at the top of the line today, will be 2nd best in a couple months at most.