If you really wanna go Intel then instead of getting an E6850 get one of the newer 45nm parts or a quad core. I mean the Q6600 is around the same price and is a good value if you overclock it. I also say go with a P45 board (especially one that can do crossfire) rather than the older P35 board.
Since I'm guessing you have a rather low budget you should really take a look at AMD.
If you're only looking for a CPU, motherboard, and RAM upgrade, you should look at Intel's E5200/E7300/E8400 + a P45 motherboard that supports DDR2 RAM. DDR3 at the moment still requires quite a bit more cash than DDR2 memory and the difference in speed is minimal at best.
As to the P45: I'll look at it, but it seems to only have space for one IDE, and I'm fairly sure that both of my opticals are IDE, plus FDD which I want to keep.
For the processor, what's the Q8400 like? It seems decently priced and has a good clock rate for single threaded games, and when the time comes the other cores will kick in. But, what AMD ranges should I look in for what I need, Phenom or X2?
BadTrip: That graphics card is two years newer than the processor, which is single core and doesn't have a good clock speed at that, so surely RAM+CPU would be a better upgrade?
I'm haven't settled on AMD vs Intel etc, this is just what I've been looking at.
The Phenom II 940 (X4, 3.0GHz) will be faster than the Q8400.
If you wanted to go for a cheaper option, the Phenom II X3 720 would be better than the Core 2 Duo E8400 in most cases.
You might prefer to upgrade your graphics card too, in which case you could consider the Phenom II X2 550, which performs almost on par with the E8400.
As for LGA 775, it is a dead socket and AM3 provides a better upgrade path. However, if you think you'll just buy a new computer in 3 years rather than upgrade, you should be fine if you chose a Core 2 CPU.
I'm now looking at the AMD 770 and 790. I dont want to pay more than £90 on the motherboard, and most 790's I find are ~120. The 770's are well priced and seem to have all the components I need, but I've heard the northbridge has heating problems and this can affect performance, and I will also be intending to overclock it a bit (or atleast play around). Also, are Gigabytes reliable or should I look at ASUS etc?