Here's a first shot at a build, just within your budget but doesn't include the O/S. I think there are a couple of rebates in there that will offset the shipping charges.
Rosewill R220-P-BK Black 0.5mm SECC Steel ATX Mid Tower Computer Case - Retail
Model #:R220-P-BK
Item #:N82E16811147074
$29.99 -$5.00 Instant $24.99
Basic case but can mount front and rear 120mm cooling fans.
BFG Tech BFGE96512GTOCXFE GeForce 9600 GT 512MB 256-bit GDDR3 PCI Express 2.0 x16 HDCP Ready SLI Supported Video Card - Retail
Model #:BFGE96512GTOCXFE
Item #:N82E16814143134
$159.99 -$50.00 Instant $109.99
Yes, a 4850 would be nice, but just doesn't seem to be in your budget.
Antec earthwatts EA500 500W ATX12V v2.0 SLI Certified CrossFire Ready 80 PLUS Certified Active PFC Power Supply - Retail
Model #:EA500
Item #:N82E16817371007
$89.99 -$35.00 Instant $54.99
Quiet, solid, runs cool and sips from the wall.
GIGABYTE GA-EP43-DS3L LGA 775 Intel P43 ATX Intel Motherboard - Retail
Model #:GA-EP43-DS3L
Item #:N82E16813128347
$94.99 $94.99
Good basic board. Nothing special, but I've used a number of Gigabyte boards, so...
Intel Core 2 Duo E7200 Wolfdale 2.53GHz LGA 775 65W Dual-Core Processor Model BX80571E7200 - Retail
Model #:BX80571E7200
Item #:N82E16819115052
$119.99 $119.99
You could drop this back to an e2180, especially if you're trying to fit an HD4850 into this build, but as much background crap (AV, firewall, etc.) as you may have, and games will become more demanding, not less, I think this is a much more balanced choice that will be more satisfactory overall.
mushkin 2GB (2 x 1GB) 240-Pin DDR2 SDRAM DDR2 800 (PC2 6400) Dual Channel Kit Desktop Memory Model 996527 - Retail
Model #:996527
Item #:N82E16820146118
$44.99 $44.99
Runs at the JEDEC standard of 1.8V. No muss, no fuss. OC it yourself if you like.
Western Digital Caviar SE16 WD3200AAKS 320GB 7200 RPM SATA 3.0Gb/s Hard Drive - OEM
Model #:WD3200AAKS
Item #:N82E16822136074
$69.99 -$5.00 Instant $64.99
High bang-for-buck drive. You could save $10 to drop back to a 250.
LITE-ON 20X DVD±R DVD Burner with LightScribe Black SATA Model iHAS220-08 - Retail
Model #:iHAS220-08
Item #:N82E16827106265
$29.99 $29.99
Never had a problem with Lite-On myself. This one is Retail, so it includes the software.
Subtotal: $544.92
You may find a good Antec Case+PSU deal. That would be an exception to the "PSUs that come with cases are crap" rule. Please remember this is a first shot, and it's real early in the AM. Others will likely find some good deals here or there, but this system is certainly decent for the money.