Priority 1-- Upgrade ram to at least 4 gb. Even if you can only use 3 of it--ram is usually cheaper in even numbers and 2 is not enough.
Priority 2--You should consider switching to a 64 bit operating system. If you do a clean install when upgrading to windows 7 you can go to 64-bit. Your system is pretty powerful--you should be taking advantage of that with 64 bit.
Priority 3- Video card
I agree with above statements. A 4850 is better than a 8800gt, but not by enough to make replacing it a smart value decision.
The 8800gt should still be able to run almost any game out there at the moment. Personally, I would wait to upgrade, and save money for a substantially better card. Or, if you have the money to burn shell out at least $160 for a 5770 or GTX 260.
*We should note that Nvidias current $120-130 range card--the GTS 250 is still using the same G92 graphics processor that is in your 8800GT. So... your 8800GT is still pretty decent.