Certain upgrades are possible, but it’s not that simple.
Accelerate your Mac is a nice source of information, you can find them here.
ANandtech did change the CPU of a Mac Pro.
OWC Mac Sales does have memory upgrades (there are others).
Video card: Unless you want to experiment with modified firmwares, your only choice in that model is the ATI 4870, which is considerably faster than the regular NVidia (it’s very noticeable in x-plane and 3d applications) but still lagging behind the “latest offerings”.
According to Wikipedia: "The Mac Pro, as with other Macintosh platforms, requires Mac OS X firmware. That is to say, a PCIe video card designed exclusively for other operating systems will not work properly under Mac OS X without appropriate drivers and/or firmware”
Sadly, no other video card has that, other than the Apple’s offerings. But If you google around there are some posts about people who managed to make other cards work.
Forget about upgrading your Motherboard, as it’s a custom design.
Hard drives/SuperDrives are generic and can be replaced, as you may have already guessed.
Any other component is probably “custom” designed for a Mac Pro (the power supply for example) and you won’t be able to get away with it…
Is it worth?
I have an early 2008 Mac Pro with 2x4 Intel XEON 2.8 and 10GB RAM. I’ve upgraded the RAM (from the lame 2GB to 10 @ OWC liked above), and I ordered the machine with the NVIDIA card (8800? I don’t remember), which was the only option other than the stock ATI2600 or something lame like that.
A couple of years later, the NVIDIA died (the Apple guy told me it had bugs and used to fail), so I got the new ATI 4780 512MB (it was 100€ less expensive than the out of warranty NVIDIA apple replacement). The difference was really noticeable in 3d apps.
I haven’t thought about upgrading the CPUs because getting faster XEONs (I wouldn’t be able to upgrade to Nehalem or anything new) won’t really make a big difference for me.
I use a SSD and 4 Hard Drives in the bays, if that counts as an upgrade (my original drive was 750gb, up from the stock 500).
I brought it with the Bluetooth/Wifi module (it was optional back then) and tho I haven’t used it a lot, it came in handy in a few occasions.
OS X Doesn’t support SLI/Crossfire for using more than 1 video card in parallel (you can install more than one, but it’s not the same thing), so forget about getting two super video cards for running crysis y super-top-ultra-maximum quality.
Conclusion
Yes, if you upgrade the RAM to something other than the 2GB and yes to the video card if you do 3d intensive stuff. Exposé will work fine on the NVIDIA8800 you have, but X-Plane (among other 3D things) will be noticeably faster with a new video card.
Replacing the RAM and the hard-drive on this Mac Mini is a moderate to challenging task, check out iFix's Guides for RAM and Hard Drive install guides.
And 1 GB is not enough ram, to do development work with. The 8GB should provide a night and day difference just itself, since its going to stop your mac from paging out to the slow 2.5" laptop disk drive.
With that said, the SSD drive should also provide a dramatic speed increase too. Although, one consideration with SSD drives is that its performance might degrade over time so plan on being able to make time to Recondition[...] [your] solid state drive (SSD).
I would also recommend keeping your user directory on an external drive (firewire 800 will give you the best speed) to avoid the space limitations of moving to a 64GB drive. This is suggesting a popular configuration of using a SSD for just the OS and applications and a regular hard drive to store all your files see Installing a solid state drive (SSD) and SSD and Hard Drive Combo: How and Why for some guidance .
As for ram make sure to get it from somewhere that has a good lifetime warranty and return policy as well as a good price.
Other than that take your time and have fun, should be a nice speed improvement for you when your all completed.
Best Answer
My suggestion is to always take the second fast processor available and invest the rest of your budget in RAM. The fastest processor is usually too expensive. You don't get much more speed for the price difference between the fastest and second fast.
And don't upgrade the RAM in the Apple Store. Find a local reseller, who delivers your System readily build with non-apple brand RAM with warranty. You could get twice the RAM for the same price. But never ever use discount RAM. It's not worth the hassle.
EDIT Oct 12:
bmike's comment is right. The SSD is right now the single most important component for your Mac's speed.
So take the SSD. Even if you can then only afford the slowest processor.
BTW. Are there still Mac models w/o SSD?