Some things to note, your Mac can upgrade to Leopard 10.5, Snow Leopard 10.6, and Lion 10.7.
However, there are advantages and disadvantages to each.
10.5's compatibility is closest to 10.4's, and includes Rosetta for compatibility of older PowerPC applications.
10.6 may have a few things not compatible, and Rosetta is an optional install to keep older PowerPC applications compatible.
10.6 offers compatibility with the latest Adobe Flash, and syncing iOS 6. With 10.6, you can upgrade to 10.6.6 combo and then install 10.7, but not without the following issues.
10.7 No longer has Rosetta included, although someone can buy 10.6 server and Parallels to keep the compatibility of 10.6 and earlier. You can optionally also install 10.6 on its own partition for the occasional Rosetta compatibility you may desire.
10.7.3 offers the latest Java compatibility.
10.7.5 offers syncing with iOS 7, 8, and up to 9.1 with iTunes 12.2.25. Unfortunately, the latest iOS 9.2 and 9.2.1 are not supported by your Mac's Mac OS X support, which means you have to be careful not to upgrade your iOS device through the nagging upgrade screen on your iOS device.
10.6 & 10.7 are far cheaper than 10.5, because of the availability of discs.
See my tips
http://discussions.apple.com/docs/DOC-2275 for 10.5 upgrade tips.
http://discussions.apple.com/docs/DOC-2455 for 10.6 upgrade tips.
http://discussions.apple.com/docs/DOC-6271 for 10.7 and above.