I would suggest the E6750 CPU, do not get a P4 or a Pentium D. They are obsolete technology and you can get better performance for cheaper with a Core 2 Duo.
I would also suggest the x1950pro. Its a champ running any of today's games and would blow that 8500GTS out of the water.
After reading that article today on Tom's about Dual Channel and memory speeds and such, I'm feeling that if you use the E6750, you can get by with 2GB (2x1GB) of DDR2-667 memory, especially since it doesn't look like you'll be OCing, I'm betting you wouldn't notice the difference and that can save you some $$$.
I don't trust PSUs that come with cases, so I would reccommend the Centurion case on Newegg, I believe its around $50, and a 500W Thermaltake PSU that's around $60.
The Gigabyte P35-DS3R seems like more mobo than the OP would need as well, I would reccommend just going with the Gigabyte P35-S3. That is around $40-$50 cheaper than teh DS3R. I think its $90.
The OP appears to be on a budget so I wont say get a 500GB HDD. The sweetspot for price/GB appears to be for 320GB HDDs right now. I paid $80 for my 320GB SATA HDD from Seagate, 3200.10 Barracuda drives are great.
Grab XP 32-bit OEM from Newegg then and you should be on your way. Pick up any DVD Burner on Newegg, any Samsung or Lite-On around $30-$40 would be fine. Don't worry if its OEM or Retail as most mobos will come with cables. Make sure you get a SATA drive though, easier to build with and better air flow.
Total cost of that system would be a little over $700 before you buy the OS. Closer to $850 if you have to buy the OS, which I'm not sure if you have already or not.
Also unsure if you'll need a monitor, speakers, keyboard, or mouse. Which would probably drive the cost of the build up over $1000.
Hope that helps.