I am looking at a new video card as well, as you should be. You have 1 PciX16 slot so any single card should do fine. I can't tell if it's V1 or V2 but either way, it can handle a new card.
The ATI Radeon 5770 seems to be prime right now, at around $160USD w/DirectX11
I am going to wait another month or so to see what Nvidia releases though, as they have NOTHING with DirectX11 out now.
CPU itself is good, next upgrade after GPU would be RAM and then MOBO...
and duh, as intel noted your PSU may not be up to snuff. a 550-650 for about $60 would be good, corsair or PC, P&C brands are good.