Unless your games are known to be cpu intensive like FSX, , and capable of using 3 or more cores, then your E8400 at stock should be fine.
Read the following set of tests using a E8400. You will notice that at 1600 x 1200 resolution(yours) FPS value increase past 60 FPS for each increase in graphics card capability. 60 FPS is their metric for best possible gameplay.http://www.guru3d.com/article/vga-charts-december-2008/4
Look next at tom's article on best vga cards for the money-March:http://www.tomshardware.com/reviews/best-graphics-card,2569-3.html
They recommend a 4850 for exceptional gameplay at 1680 x 1080.
That card is only a tier or two higher than yours.
I think I would opt for a slightly stronger card like the 5740 or 5770 based on the newer technology and 40nm manufacturing process.
The equivalent Nvidia cards are the GTS250 or GTX260. An Nvidia upgrade would have the advantage of no driver cleaning and reinstall issues.
Your PSU is a good one, and will have no problem powering any single card.