Save some more money to go with an 8800 GTS 320MB, like the card that I have, it runs awesome and you will be able to run everything on the max settings without any problems. Also if you want to go vista, make sure you have a DX10 supporting card, so get a card from the latest '8' series, or the 'to be released' new ATI cards.
Also, maby by the time you get the money NVIDIA will releash their new cards the 89xx series. You might want to wait for them
I don't think a lot of you know this, but last week, 22nd of April, INTEL dropt their prices like 29-40%. This very summer they will do that again. So the prices will drop loads --> you can better go with a C2D system after the summer, because they beat AMD. Then you also need a new mobo ofcourse.
The ram prices are also dropping, I bought my ram got like 77 euro's (2GB DDR2 667Mhz), they will probebly drop a bit more, not too much though, but maby enough so you can go to 2gb.
Just remember, by the time you got the money for your upgrades, a lot of things have changed. Really ALOT, new videocard series, pricedrops, quadcore might be the mainstream by then, seeing how the pricedrops make it the most wanted processors atm and all kinds of new technology is about to be releashed/drop in prices. So you might want to remake this topic a bit before you actually buy it.