Wow. Don't listen to Helloworld, I've seen him around lately and he hasn't given ANY good advice. He gives his opinions or thoughts, not actual facts.
Windows 7 is great. I'm using it (64 bit) as my main OS, it runs as smooth as XP with all of the good-looks of Vista. I have nothing but good things to say about it. My processor is fairly outdated (Athlon x2 4000+) and it still runs fine.
For your budget range, you should go with AMD. I suggest:
Phenom II 720
Mobo that suits your needs
HD4870 or two 4770s in Crossfire or a GTX260 Core 216
4GB of RAM, DDR3 if you can find it cheap
Western Digital Caviar Black hard drive, the 640GB seems to be the favorite
Antec 300 or CoolerMaster CM690 case (good airflow, cheap and reliable)
I don't need to research Win7, I'm running it myself. It runs better than XP on my rig. It's just as responsive on the desktop, even though I have all of the added features (gadgets, etc) and twice as many background processes running, and it performs better in games, I got ~15% FPS increase.
I've also seen you tell someone to put Linux on a PS3 for a gaming/general use computer, which actually made me laugh.
Thanks. With that specs I will run Win7. Any more suggestions? Would HD4890 do the job?
The 4870 has better performance for it's price, but the 4890 is still a good card. It's your choice. If you were to go with the 4890, I wouldn't bother unless you're getting one of the 1GHz core clock versions.
about the linux on PS3 thing, it was actually the best thing for the money on what his uses were and it would have support for 5 years so he didn't need to worry about upgrading or buying a new PC later.