The bad news is your processor is a Pentium D which is pretty crappy at this point. The good news is your motherboard is a 775 which means you should be able to upgrade to a better CPU fairly easily as all core 2 duos/quads are 775 as well.
Coozie has made some good suggestions and looking on that site you can get an e5300 for £53. That chip is well over twice as powerful as your Pentium D and overclocks very well if you are interested in such. At that price the e5300 + PSU + any of the 3 cards he linked should come in under your budget(the ATI are a better value for the money.)
If you aren't interested in upgrading the CPU I'd probably just go for an HD4670 as anything much better than that will be wasted on your CPU.
oh and also the HD4650 would work with the current PSU...? thats surprising.. sorry but are you definitely sure that it will..i just dont want the hassle of ordering it and then having to return it etc.. Thanks
^ You're right, it's a great unit, but far, far more than you need to spend, even 400W is going to be a bit much really but the prices at that end of the spectrum are very close, so you might as well get a big one.
No, the HD4670 may not run on your PSU, but the 4650 will, the 4670 uses nearly twice the power of its smaller sibling!
Check the specs carefully. The HD4650 comes with DDR2 memory (not good) or DDR3 memory (better) so try to hunt down the DDR3 version.
As for brand, I have no brand loyalty at all and usually just get the cheapest, but BFG and XFX are supposed to have the best warranties and support.
The HD4650 uses the same, or possibly slightly less power than the 6600 it might be replacing.