If you are upgrading from a 8400gs you are best off sticking with a Nvidia card. Sometimes switching from Nvidia to ATI cards can cause driver issues. I wouldnt upgrade to a 9600GT--it might be good enough for now, but wouldnt show the noticeable difference you want. You can get a GTS 250 for about $110 that would be a very good investment. http://www.newegg.com/Product/ProductList.aspx?Submit=ENE&N=2010380048%20106793024&bop=And&ActiveSearchResult=True&Order=PRICE
If you dont want to spend that much, the lowest I would consider is a 9800GT--which are available for not very much more than a 9600GT.
Overall your system needs a better graphic card and should probably be upgraded to 4gb ram. The E8400 is still an excellent gaming processor and wont need to be upgraded for a while--when you need to you can always overclock it to at least 3.5 ghz--maybe even 4ghz. 2 gb of ram is probably enough to run the games you want--but will start to struggle if you have other processes running in the background. (such as antivirus, punkbuster, program launchers)