Even if sm 3.0 comes out anytime soon,
It's already out, and it's extensively used in many games, especially Oblivion, the game in question.
the x1600 will perform just like a 9800 pro.
The plain X1600 might, but the X1600Pro is better than the R9800XT, let alone Pro.
Stick with the x850 pro, for there will not be any games running on sm3.0 so enjoi the games and glory for the next year or so.
Except for the game she mentioned she's specifically upgrading for.
If she were considering an X800GTO2 or an X800XT/XL versus the X1600Pro then I'd say she should go for the additional power over the additional features, but considering the proximity of these two cards, and how crippled the X850Pro is anyways it performs near the plain X800GTO which isn't too far from the X1600Pro in shader heavy apps like Oblivion. So this is to me close to a tie, and in the case of a tie, the tie breaker is features. I'd agree with you on the memory since neither card is really a high resolution high settings king, but even as slow as the memory is on the X1600Pro I think you'll find neither card would be playble at high setting at a high enough resolution to matter.