The 8800 GTS is good.
How long can you wait for the next-gen which will have twice the performance and have Tessellation ?
If you want good NOW, the X1950XT is better than the X1950Pro. (way better than the 8600GS)
Your CPU and RAM seems good enough.
Get a high-end PSU if you care about high-end video cards.
if you intend on playing over 1600x1200 or 1680x1050 or so for and so on you'll probably want the 640mb version, but if you want to play at those res's with the 320 you should willing to turn of a few features. Games will always be getting more complex SO unless you want to buy a new card every year you'll probably want to stick with the best you can afford, and then skip generations.(i.e. 4*** then 68** and then 88**, you get it?)