Just in case, have you tried updating the driver in some other way? I would do a backup first, but you maybe able to find a compatible driver elsewhere, like driverguide.com, or with google. If not, I agree that Linux is your best bet. I don't know much about other modellers, but I do know that Blender is the most powerful free software. And it works quite well with Unity.
It isn't the best thing, but I'd say you could dual boot Linux with windows. It sucks that you would have to go in and out of each to get things done, but at least you'd have access to more powerful software. You also lose the nice "connection" between Blender and Unity this way though.
On the other hand, another modeller like Wings3d, Anim8or, or Sketchup may work for you, and if this is the case, go for it.
One thing worries me though. How well do you expect to test games on this machine. I'm sure Unity will fallback the games graphics, etc... to work on it, but I'm not fully sure. And assuming it does, how will you test better graphics features that won't work on this machine? If I'm not mistaken, you won't have even the first generation of shaders, which is quite limiting. I know money can be an issue, but if you are interested in GameDev, maybe you should make it a priority to save up for something newer anyway. This offering is currently $599, and has plenty of capacity for most GameDev projects, including a mid-range dedicated AMD graphics card. You could also get something like this, which is only $349, but has an i3 processor. The graphics chip is a dedicated intel chip like the one you have, but a much newer version that comes with the newer intel processors. It won't be as fast as a dedicated ATI/NVidia, but it is enough for gamedev, and would run Blender and Unity just fine. It also supports almost everything that ATI/NVidia support, like DX11 and Shaders 5.0, but it simply supports them at a slower speed, and is dependent on system RAM. These are usually underestimated though.