Your limited in resolution by your monitor.
If you upgrade monitors to a 1080p or '1200p' then you might hit a bottleneck with your CPU if you just upgrade your Videocard.
Honestly, you do not need to upgrade your system. Throwing more ram and a video card should let you get by for another year or two or until either your CPU or Mobo dies.
Upgrading the video card would be the cheapest solution, picking up a 6870/6950 or 460/560Ti (depending on budget and what you feel comfortable spending) would probably suit you just fine at that resolution @high/ultra settings.
For a decent Intel system you are looking at between 400 & 500 dollars for a (CPU/MB/RAM) + PSU depending on what you have now.
You could do a none BD AMD system for $300-400 + PSU.
EDIT: Adding additional ram to your system now would be a one use purchase. You can not re-use your existing ram in a new system, it is DDR2, Adding additional ram now might extend your system enough so that you could completely skip the DDR3 gen and upgrade to DDR4 if and when it becomes available and mainstream, hopefully within the next 3 years.
I doubt you will see a huge increase in processing power over the next 3 years, The CPU you have and the ones that are out now, C2D/C2Q and 1st Gen I & Phenom II are more then powerful to handle any day to day tasks an average home CPU would require over the next 3-5 years. Newer designs will either be more powerful using the same amount of wattage or will stay around the same using less wattage.
While a SB i5 2500k might be uber tempting, you need to evaluate your personal computer usage and what you need from your system rather then being convinced your hardware is garbage compared to the newnew