If $200 is a hard limit, get the parts that I already suggested, just don't get the PSU. Because all the parts I listed had MIR, you will actually need all $200 just to get the RAM and Video card.
Getting the ram and a 3870 should be a very nice bump in performance. If you like Nvidia, I saw several 9600s for about $100 on newegg, they should perform very close to the 3870. (they didn't ship with a free game however.) A word of warning, they also had an 8800GT, but you should avoid it. It was a 256MB model, and they don't compete quite as well as their 512MB brothers.
Before you buy, if you didn't notice it, make sure your PSU has the PCIe plug needed for video cards. I'm sure it does as the 305W one does, but it never hurts to double check.
If you can exceed $200 by just a bit, you can get the memory for $67 after rebate, then try to get an 8800GTS. This card is MUCH better then the 3870, and can be found for ~$155. Because it would also have a rebate, you'd need ~$260ish for both the ram and card, it should drop to just over $200 once/if you get them back. If you can, get the GTS, if not, learn to play NWN2. (I am of course referring to the 8800GTS 512MB cards, do not get the 640/320MB GTS.)