Good to see we have other experienced techies who like gutting Apple's beautiful hardware! Haha.
No your processor isn't that outdated at all. My black MacBook with a C2D 2.0ghz is still running beautifully after 6 years and surviving a fire and being smashed by a pedestrian. Core 2 might not be the freshest apple in the patch, but they still process and do day to day lightweight media and browsing like a champ. The 7600 was a good processor, had one in my gaming rig until I got an 8400 (just before I built my new i7-2600k monster)
I found a picture of the logic board in question on dvwarehouse and it looks like the same MXM-B slot. As your Core 2 Duo 7600 has a lower TDP than our i5s, as long as the power supply is good to go you're set on the upgrade once you have the part in hand. Not sure what the draw is on the 6970, but I think Apple used the same 130 watt PSU in all their 2009-2011, and my iMac handled it like a champ. So at least from this hobbyist, no objections at all.
I will add this before you get wrist deep in iMac guts: when dismantling the lower portion and removing your logic board from the case, the IR receiver is obnoxiously well integrated. I actually believe I damaged mine, because you have to wiggle it completely up before you move the memory slots out of place. I never use the remote, so no big loss for me, but as yours is a media center I'd be very careful.
The guide from HardMac shows this step with very little emphasis, but it was the biggest frustration for me.