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You need to factor in the cost and hassle of changing your motherboard everytime you swap your CPU...
Also I see Q6600 still being sold for around £70, not £50, but I agree with your point that if you upgrade often then you can do it quite cheaply if you go for the cheaper bang for buck parts.
My personal approach has been to at least a 50% increase in speed, anything less and generally it is hard to notice the increase when you're not running a benchmark. .
I upgrade when there is an actual benefit in doing so from a personal standpoint and I also take into account price/performance. However that never stops that annoying upgrade itch I seem to get all the time.
I upgrade when I can't lock my favourite game at the time at a constant 60fps.
depreciation
This argument makes quite a lot of sense to me. It does hinge on the premise that you can think of something to do with the obselete hardware though, I've got a 600mhz / 256mb ram laptop in a cupboard, it isn't worth selling it but I can't think of a use for it. So in the cupboard it'll sit, until eventually it's thrown out. That one was run into the ground though, I think the missus got around 8 years worth of use from it.
edit: Cost of hardware / number of hours spent using it is worth guessing at too. A grand on a computer that's used for three hours a week is a very different proposition to spending a grand on one which is busy for eight to sixteen hours a day.
I have just upgraded from a Q6600 @ 3.2ghz to an i5 SB @ 4.6ghz.
The upgrade in most applications is 2x as quick as my Q6600. Pi used to be calculated in around 16 seconds and it is now 8.
The next time I will upgrade is when pi can be done in 4 seconds and most applications are benchmarked twice as quick as my i5. Probably in a couple of generations
I upgrade when either a) my PC no longer performs what is required in a timely manner, or b) I get a bad case of upgradeitis
I will probably upgrade in the next 6 months or so. Although I am just about to buy a new laptop and I really wanted an Orange Five sometime this year so maybe it will have to wait even longer