How much can I upgrade the OS in my 20 inch iMac (late 2006)

I'm still running OS X 10.4.11 in my 20 inch iMac (late 2006)

- iMac5,1 model identifier

- Intel Core 2 Duo (I processor, 2 cores)

- 2.16 GHz processor speed

- 667 MHz bus speed

- L2 cache 4 MB

I can no longer run Firefox, Skype, etc.

From inspection of published System Requirements for various versions of OS X, I gather that (at least theoretically) I should be able to upgrade the OS as far as 'Lion' (that is OS X 10.7), provided first I increasse the RAM from 1 GB to at least 2 GB.

Questions:

1. Is 10.7 really the latest OS I can put into this machine?

2. Considering the present date, is upgrading the OS more trouble than it's worth.

On the other hand, from even a brief search in this forum I gather that in the past some people have had many unexpected big problems after upgrading the OS.