Of course your i7 ivy bridge boosting to 3.3 is more then enough, its your gpu which is the problem, because Xenoblade is also very gpu demanding...
Consider yourself lucky if you can run it at 1x, and I dont see the point in that, because it will look ugly...
What Nvidia GPU would you recommend to be able to play this game at 1920x1080 res and AAx4 AFx8? This is the only graphical demanding game I wanted to play so I'd prefer not to invest too much in a GPU. I have an Intel i7 3770 CPU, thanks.
With a modern GPU, you don't even have to concern yourself with maxing out AF to 16x. I imagine anything on the level of the GTX 560 Ti would be good for 3x IR plus 4x MSAA. You could probably get away with something lower; my GTX 550 Ti might handle those settings, but I've yet to dump my copy of Xenoblade for testing.