Beef up micro ATX build for best quality gaming?

My current Kodi setup is an i3-3225 with onboard graphics, 4GB RAM, and no discreet PSU (PicoPSU used) in a MS-Tech MC1200 micro ATX HTPC case (see images attached). So far, I’m only using it for streaming, live TV, and media playback (all through Kodi), but I’d like to beef it up to play PC games at best quality.

I love the hifi appearance and noiselessness of my setup, so ideally I’d like to keep most of it as far as possible.

What I understand is that I need at least:
– a discreete PSU
– an i5 (or even i7) CPU
– a discreete GPU
– more RAM

My questions are:
1. Do you think it could be possible to cram all that into the case without risking overheating? If necessary, I could live without the BluRay drive. Never used it anyways…
2. Is there any way to reduce the noise of such setup when no games are being played? While I have to accept the noise for playing games, ideally I’d still like to enjoy watching movies without much background noise.