Need Guidance on Building a Budget Gaming PC

Hi, I am new to the forums and have never really looked into building my own computer until recently. I have a laptop that I use for school and would like a desktop at home to put all of my useless non-sense, basically to keep my work separate from my games. Unfortunately, my desktop at home is more or less useless right now. It has an AMD Athlon XP1800+ 1.4ghz about 512mb memory and around 40gb HDD. All in all, its nothing special and it needs an upgrade or a completely new build.

APPROXIMATE PURCHASE DATE: As soon as possible I suppose
BUDGET RANGE: I am hoping that what I want can be done with less than $600-$700 after tax/shipping

SYSTEM USAGE FROM MOST TO LEAST IMPORTANT: GAMING more or less(HoN, Borderlands, SFIV), and just overall smooth functionality

PARTS NOT REQUIRED: Mouse, Speakers, Monitor

PREFERRED WEBSITE(S) FOR PARTS: Preferred something within Canada, but besides that no real preference

PARTS PREFERENCES: I was recommended by a friend to get an Asus P5E mobo and an Intel E8500 cpu, and other than that nothing specifically. I found OCZ PC3-10666 Platinum RAM - 4GB, 2x2GB, 1333MHz, DDR3, Low Voltage, Dual Channel for less than $100 so that seemed pretty reasonable.

OVERCLOCKING: MAYBE, not aware of the exact functions of this. Will it save me money and compensate for a lack of speed with a lower cpu?

SLI OR CROSSFIRE: Yes / No / Maybe

MONITOR RESOLUTION: 1024x768 or 1280x1024

So here is my dilemma: I am not sure whether it is more cost efficient to buy a pre-built desktop, upgrade my current desktop(if it is possible based on how old the hardware is), or just build my own.

If I buy pre-built I can upgrade it from there in the future when I have the funds.
If I upgrade my own I will save time and money on new things I do not necessarily need.
(I don't think this is likely as my hardware is quite out of date. I searched for the Athlon XP1800+ on the forums and all of the posts were from 2001-2003)
If i build my own I can make sure it has potential for upgrades in the future, but I will need completely new parts, especially since the main function of it will be gaming. Also, i fear that I will be spending more this way as I am not sure if my monitor will be able to handle a new video card and such.

ALSO, my friends were suggesting I just buy a new laptop instead of a desktop.
Opinions of laptop vs. desktop ?

Thank you in advance ! and if I am being to vague please let me know what you guys need to know. All help is greatly appreciated !