If your case is big enough, then well and good. The GTX 260 is a power hog, though, and it might well overwhelm your present PSU. As someone pointed out, available amps on the line is more important than the total watts, though the two are related. Beyond that, only the Thermaltake Toughpower PSUs of 650wt or greater have good recommendations from the Thermaltake line. Personally, I'm always puzzled by people who want to install the biggest, most power hungry hardware they can find, yet they don't want to upgrade their PSU to handle the extra load. A PSU is the heart of a computer. If it fails, nothing else works.
As some others have pointed out, a GTX 260 card is more than the rest of you machine can handle well. I addressed the questions of the video card and PSU only. Of other changes, I would first get rid of your present ram and install two sticks of ram (2x1 gig) to have a matched set that would run under dual channel and 1T timing instead of 2T timing. A good set of ram can be later transferred to a new motherboard, as long as it uses DDR2. After that, a better CPU would be a good move. Last would be a better motherboard.
A question that remains is; How much money are you able to spend? First and foremost, a good video card is a good investment, in my opinion. You can always move the video card to a new computer later. If you can overclock your present CPU, then do it. If you can afford to buy a new CPU, motherboard and ram, then that would be better. It really wouldn't matter if you stayed with an Intel setup or went with AMD. The last I saw, a person could buy a 9950 BE and a new mobo for around $300, for instance. But it all comes to an old adage: "Speed costs money. How fast can you afford?"