It sounds like Plank might be able to score you a deal on a ps-eye. Hope that works out.
Certainly, more frames / second = moar better (if it doesn't cost much more $ or cpu cycles).
My original point was that you *can* use a lesser camera and it will still work (At the time I made mine, the cheapie was on the shelf, rather than having to wait awhile for a better one... "bird in the hand", you know)
I've used both: headphone side clip (made out of sexy coat hangar, and tie wraps)
and ball caps: My current one uses the shell from a clip-on car radar detector, with the leds nicely glued in place.
Both worked acceptably well, but I find the ballcap to be more convenient, robust, and maintenance free.
It's been awhile, so forgive me if my memory is a tad hazy, but iirc there was info about suitable dimensions to use (to prevent the overlap problem you're having). You'll note that the bottom arm of the headset clip is longer than the top arm (for that very reason), and for the ballcap, the height & depth of the top led is the key part.
If (like me), you didn't pay close attention to those details during construction (ewpsie), you can also fiddle around with the dimensions you entered to spoof it a bit, and you can also dabble with point / dot size and other settings. Depending on what you actually built, that may (or may not) work well enough to solve the problem. In my case, I just chucked my first coat-hangar in the garbage and bent-up a new one (properly). By the time I got to the ballcaps, I'd learned that the dimensions (actually, the relative ratios) matter.
In any case, if you're building your own, tinkering around with that stuff can be a significant bit of fun (or frustration) depending on your temperament.
In any case, stick with it -- I built mine a couple years ago now, and it works great (in RoF, BoS, DCS, BMS & FSX). I've never used a commercial trackIR, so I can't compare, but I've also not felt that I needed one based on what I am currently using.
PS> One comment on your rig -- 512MB in the graphics card seems a bit low -- particularly on bigger maps with more plane types, and especially if you download and use custom skins (they take up a bunch of space to render them). Were it mine, I'd reco 2GB for your card -- Of course, things vary, so if it's working ok for you, great.