You're gpu will give you a major performance increase in gaming.
Maybe a 4xxx series? Or if you are a real gaming fanatic and want dx11 (only supported in vista and win7) you could buy a 5xxx series.
HD5750 for 100 bucks
HD5770 for 125 or so
And then you still have money to upgrade something else?
If you really want to go and max your budget, chose a HD5850 for 200 and a bit.
Hope it helped