well your looking at 300-350 for upgrades.
150-200 for the gpu and 150 for a 1920/1080p monitor...
its pointless recommending a mid to high end gfx card for such a small monitor as its likely to cause a cpu bottleneck. but if you want to play demanding games you could get away with a midrange 560ti for a while then upgrade the monitor later. if not then a gts 450 will do the job...
also depending on the psu you have you may need to upgrade that 2... 50-70 should be enough for a quality unit of 550-650w.
So you're saying that 'small' monitors cause cpu bottleneck having a decent gfx? My monitor is also a 1280x1024 19' but I have n older pc. that sounds interesting, I thought the bottleneck could be caused by the cpu-gpu like a powerful gpu but having a quite old cpu.
Sorry for going off topic,
sloppyjoe15 I think Hexit is right with the upgrade for running games at that res the 560ti or the 448 version does a good job,you might also consider a 6950.
not off topic. its a good point. the reason being is that the cpu has to process the fps that the gpu throws at it. 60 fps will be fine but if the gfx is throwing 300 at it the cpu will shout "stop! i cant cope" sooner or later leading to fps droop where you drop from 300 down to 30...
building a balanced system is the goal of any gamer. the more balanced the machine the longer lifespan it will have and picking the correct monitor can impact the balance dramatically. to big and your gfx cant produce enough fps to give smooth gaming. to small and you get an over abundance of fps and fps droop in demanding parts of the games. where you suddenly drop from 300 to 30... this doesn't give a good gaming experience and can lead to player frustration as well as game lag.
like i say balance is the key to good gaming and picking the right size monitor for the power of your gfx card is an essential part of that balancing act.