What should I upgrade now?

Sounds like you may need to blow out and and clean your system. Check the fan on the 7600GT for killer dust bunnies. What power supply do you have ? The 9800GT uses substantially more power then the 7600GT. Is it a PCIex16 socket or an AGP ?

Clarification required: These are load or idle temps? If it's load, you don't really have anything to worry about.

As for the upgrade, you honestly don't need the 9800GT for the res you're playing at. If you're looking to save a little money, the 9600GT is more than enough.

I just recently cleaned my computer, I believe it's not getting enough air ventilation. But, i have a 550 W power supply. Also, yes they're load times when i'm playing games.

Your power supply will handle it easily. Quality 9800GT are selling for $110 after rebate. Dual slot for better cooling, it exhausts out of the case.
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
Dual slot 9600GT for $90 after rebate
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
Dual slot 9600GSO $50 after rebate
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
all would be good cards at your resolution, the 9800GT is the best performer.

Alright cool, but I was also thinking about getting a Zalman heat sink for my CPU. Do you think it's worth it to buy that and OC my CPU ?

Well if you want to play Crysis at 1280 x 1024 it's going to depend on the level of detail you want as to the card you should get. Going on high to medium though you'll be fine with the 9800GT. A good heatsink will go a long way towards overclocking your CPU. You should be able to get some good milage out of that E6400.

First hand, I can say stepping up from a 7600GT to an 8800/9800GT is huge (I went 8800GTS 320 back in 07), and definitely needed for modern games. Taking your resolution into account, the 9600GSO for 50 bucks is probably the best value, but the free Crysis game is the kicker I couldn't say no to. Another great option is this:

http://www.newegg.com/Product/Product.aspx?Item=N82E168...

Same card, ten bucks cheaper, and an equally good if not better game.

And I've loved my E6400, a decent $30~$40 cooler and you're golden up to 3.2Ghz at around 1.35~1.36 volts, a small voltage bump for a huge 50% payload, and an even 400Mhz FSB to keep the RAM in perfect ratio. Fun ends there though, mine spikes in voltage requirement to reach 3.4Ghz, a nasty hot 1.45 volts. It's very worthwhile, at 2.13Ghz, minimum frames can be choppy in CPU intensive areas, 3.2Ghz and you're steady 30+ almost all the time.

You're in a great position right now to upgrade very cost effectively, providing your mobo can overclock decently, for only 150 bucks you'll be playing any game out there maxed out.