Ram
I'm always a big "upgrade RAM first" promoter. However, I just got a macbook a few weeks ago (love it, love it), & upgraded the RAM to 2 gigs within a week. I honestly didn't notice much difference, if any. But then again, I've only been using it for stuff like internet surfing, iTunes, iChat, a Scrabble game, etc. Granted, I often have them open simultaneously, but 1 gig handled all that fine. If you're going to get into video editing or work with big files in iphoto, etc., I would think going to 2 gig is a no-brainer.
Hope that helps.