The best improvement you can make is to get an SSD (OCZ Vertex 2 or Crucial C300), but if it is still on your budget.
Second best improvement should go to the GPU, care to go with HD5850 or higher?
For about the same price, have you consider to use X4 955 or X6 1055T?
Don't forget to get an after market proc cooler if you plan to OC your system.
Don't forget to buy Windows 7 premium x64 (or Linux for free).
SSD is way out of my price range, same with the HD5850. Might look into those for upgrades later.
I did look at some of the AMD processors, but 95W for the i5 is already kind of a lot. Good suggestion for the prices though.
What processor cooler would you recommend? Although I currently do not plan to OC as I don't have the funds to replace anything I fry.
I do have Windows 7 Pro, got it a while back with the student discount deal.