"CPU: Intel dualcore 1.8ghz E2160 FSB 800mhz
Mobo: Intel D946GZIS max FSB 1066mhz
Memory: Kingston Valueram 1ghz ddr2 667mhz single channel."
Dual channel memory is what you should have opted for versus the single channel RAM you got.
"I'm a newbie so please bear with me. I was checking the Memory settings in the BIOS and was confused why it's showing the Mem Freq to be 533 rather than 667. Plus, the timings are also different. SDRam setting were on auto so when I changed timings to 5-5-5-15 from 3-4-4-15 as well as changing memory freq to 667, the system wouldn't run."
If you are not overclocking your machine, all you need is (DDR2-400MHz) PC2-3200 rated memory to run your CPU in sync with your RAM, since you have the 800FSB E2160.
Some of the memory related patterns that you observed are not unusual according to Intel. Since you have DDR2-667MHz (PC2-5300) memory, I would suggest you do not use SPD. But rather, go into the BIOS & set the memory speed manually to 200MHz with 3-4-4-15 timings. This should allow your CPU & RAM to run in sync & still keep the timing fairly tight.
"After reading some posts here, I d'led CPU-Z and it shows my CPU bus speed to be 199.8mhz and FSB:DRAM ratio of 3:5."
Apparently, you are running the RAM faster than the CPU, but the optimal setting should be 1:1. Right now, with the CPU's FSB being at the stock 200MHz - your RAM is running at its stock 333MHz speed, hence the 3:5 (FSB:DRAM) ratio reported by CPU-Z. You need to lower the memory speed down to 200MHz.
"Clock speed also is 1198.7mhz and keeps changing to 1798mhz. Multiplier also keeps changing from x6 to x9 Shouldn't it be the latter in both cases?"
Well not exactly -- with a non-variable bus speed, because the E2160 runs stock at 200MHz with a 9x multiplier, unless you have a system (usually notebook) featuring Intel's Speedstep technology in place throttling the CPU speed to conserve power based on your system's processing load.
"Moreover I'm confused about FSB and Bus Speed. What's the difference b/w the two and how come it's not mentioned at Intel's site? All you have is the clock speed and FSB mentioned."
Just like CPU & processor, you should expect to see FSB & Bus speed used interchangably & interprete the two as the same.
"So, I guess I'm not able to utilize the 333mhz speed of my memory with the current CPU, if I'm not wrong. Would I need to overclock the cpu to achieve a 1:1 ratio? Can I achieve a 1:1 ratio w/o OC? Would I need to get a CPU with 333mhz bus or reduce memory that would ensure a 1:1 ratio?"
Refer to my first couple of paragraphs.
"I bought my system just 2 weeks ago so I'm kinda worried that in the long run I'd have probs regarding mem and cpu performance."
Don't really see a problem with the machine ;-)