Once you are at 10.6.8 Lion is still available from Apple. You will have to call Apple Customer Care 1-800-692-7753 or 1-800-676-2775. to purchase it. Then within 3 days you will get an email with a code which you can use to download Lion from the App Store. The price is $19.99.
Lion will require at least 2gb of RAM but really needs 4gb to run smoothly. The model 4,1 (Early 2008) can use 6gb of 200 pin 667mhz PC2-5300 RAM
As for third party programs see this list for compatibility with 10.7 http://roaringapps.com/apps:table
Also Lion doesn't run any Power PC programs. To see if you have any Power PC programs go to the Apple in the upper left corner and select About This Mac, then click on More Info. When System Profiler comes up select Applications under Software. Then look under Kind to see if any of your applications are listed as Power PC. Universal and Intel will run under Lion.
Before Mac switched to Intel processors in 2006 they used Power PC processors from 1994 to 2005. Power PC 601 through 604, G3, G4 and G5. Applications written for the Power PC processors need the application called Rosetta to run on Intel processors. This was part of the Operating System in 10.4 and 10.5 but was an optional install in 10.6. With 10.7 Lion Apple dropped all support for Power PC applications.
These are good online stores for Mac compatible RAM
OWC http://eshop.macsales.com/shop/memory/MacBook/DDR2/ - They offer Mac tested RAM at very good prices.
Crucial Memory http://www.crucial.com/ - good place to buy RAM from all over the world. They also have an excellent memory selector that allows you to choose memory based on your computer's model
Data Memory Systems http://www.datamemorysystems.com/apple-memory.asp - another good, cheap place to buying RAM if you live in the U.S.
Here are instructions on replacing RAM in a MacBook with a removable battery. http://homeoffice.consumerelectronicsnet.com/articles/viewarticle.jsp?id=44404
If you don’t have the tools to open up the MacBook OWC has a set for $5.
http://eshop.macsales.com/item/OWC/TOOLKITMHD/