Currently there are some reported compatibility / performance issues that the HD 5xxxx series has with Win XP so I will exclude those from my recommendation.
You should be fine with anything up to an HD 4890 or GTX 280; assuming your power supply is powerful enough. There maybe a little CPU bottleneck, but most games are GPU limited. If you are looking for "bang for the buck" then I would suggest the HD 4850 or the 9800GT which are roughly $100.
Any card can support 1080p. If you mean you want to watch Blu-Ray movies, then you will need to look for a card with HDMI output.
Your power supply in that system may be a limiting factor. Take a look and let us know how many watts it is and how many amps on the 12v. Please also let us know what you usually do with your system, if you're not a serious gamer you can get by with a less powerful graphic card.
I think you have a strategic decision to consider:
Is this a temporary card until the new build, or will you be transferring it?
If its temporary go cheap. It might be smart to buy a single midrange card for this machine-- then later get a second to crossfire them on the new machine/motherboard. This might be the most cost effective way to nearly double your power a year from now for the new machine.
I will look up the power supply info after work today. I am a gamer...don't have too many games right now mainly because I am afraid they won't run too well on my machine since it's kind of outdated. I have an x1300 which was awesome for games 4 years ago when I bought it, but now It's the minimum requirement for most games. For example, I tried playing the new Batman game and it was super slow (IDK if it's just the video card or the machine as a whole) same thing for Fallout 3...had to play in low settings and then it would freeze after some point and not work....so I gave up on it and figured I'd retry playing it once I have a better machine or at least a better video card.
I do want to get a new machine next year...maybe summer time but at the same time I wanted to at least play some games coming out soon like Assassin's Creed 2 etc. If my PC can handle a good enough card worth transfering into my new machine then I'd do that (kinda hoping so) but I guess I could buy a new motherboard that allows cross-firing and do that like deadlockedworld suggested.
Anyways, i'll get back to you guys with he PSU info.
All I understand from this is 550 W and 12V....haha. Hope this helps.
So which card should I get considering I might transfer it to a new machine (if necessary I could get a 2nd card on the new machine). I guess it's also important for the card to have an HDMI slot so I can eventually watch blue-ray on the PC.
I'm not a PSU expert, but thats probably good for most, except the most powerful cards/overclocking. (Its the 12v that is your weak point--watch for this on cards you consider). Cards with high requirements will typically be listed with them on newegg.
If its transferring to the new machine I would angle for a newer model to ensure its lasting ability. i.e. ATI's 5770, 5750, 4770. The 5xxx have direct X 11, which is nice, and newer cards will still be on the market in a year for the crossfire option, while many of the current bargains (4870, 4850, 9800gtx) may not be. The newer GPUs cards are typically more power efficient too.
If you dont care about upgrading to 2 cards in your new computer then just buy whatever tom's recommends at your price point--all of them will work in a new comp.