No, it's not OK !!!!
The new iTunes is severely broken on these older Macs with the unsupported video cards. If you "upgrade" you'll end up with problems.
If you did upgrade, you'll still find the old iMovie in an "iMovie 9.09" folder in your Applications folder. Just use that, and pretend that the new iMovie doesn't exist.
If you try to use the new iMovie, it will copy your projects - this may use up a lot of your disk space. It will run very slowly. Then, at some point, you'll start to get visual glitches - parts of the image on your screen may get garbled, and it's not limited to iMovie. It makes your whole system unstable, and other apps will become unusable. You need to reboot to fix it, and if you want to recover the disk space you'll need to find the copied projects and delete them (they are in a "package file" named "iMovie Library.imovielibrary" that's most likely in your Movies folder - just delete that file).
Apple has to fix a bug in Software Update so you can't bypass the compatibilty check (and as other people noted, make it so we don't see updates that we can't use).
But to be clear - this is a bug in software update / App Store. Nothing has been "fixed" in iPhoto to make it run on your old computer, and it never will.