Best upgrade for this 2 year old comp for 200$ ?

best $200 upgrade: HD6850 for $189.99

Sorry about the newegg thing.
I would say Video card and PSU as E8400 are still OK. Others might suggest a CPU but then you're looking at MB upgrade too. I would look at the following.

http://www.newegg.com/Product/Product.aspx?Item=N82E168...
OR
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
I like the 6850, (second link) and have used one in a build. It is a very nice mid level card. Some prefer the 460's and they are rated very close to the AMD product. I believe your MB has 1 PCIe right?

http://www.newegg.com/Product/Product.aspx?Item=N82E168...
OR
http://www.newegg.com/Product/Product.aspx?Item=N82E168...
The Antec brand is a favorite of mine but have had Kingwin also and liked them very much. Couldn't seem to find a good combo deal.
The two put you closer to 300.00 than 200.00 but later when you do upgrade CPU and MB you can use the PSU and VC in the new build.

I have never heard of Kingwin. Stick with the Antec.

Thanks for the opinions guys.

So if I recap, ScrewySqrl says I should upgrade my HD4850 to a HD6850 while g048989 says I should go with either the HD6850 or a 460. However, he adds additionnal components.

My 2 questions at this point are:

1) If I switch myHD4850 for a HD6850, will I need to add additionnal components on my computer?

2) For 200$, is this move the best I can make to upgrade my computer for mostly gaming? (Would like to play Dragon Age 2 when it comes out next March).

Thanks!

Both the 5850 and the 6850 have minimum recommended power supply requirements of 500 watts. Your power supply is 2 years old according to your initial post. I would replace it with a minimum of a new 550, but would recommend a little higher wattage unit from a respected manufacturer. Antec, Corsair, Seasonic etc. The GTX 460 calls for a 450 watt min PSU. I would suggest buying a new PSU for that card as well. PSU's do weaken with age. You might very well get away with running either of the cards on your current power supply for a long time. But for less than 100.00 you have the assurance that all of your components are being powered with stable clean current and you wouldn't have to worry about under powering and causing damage or just not being able to use your PC.
I think replacing the a 2 year old PSU is a smart move when upgrading a VC card especially when it is just at the minimum requirements.

Ahhh yes, that makes a lot of sense. Also, would the Antec PSU you listed be strong enough for ulterior changes such as a processor upgrade?

Yes either PSU would meet your needs and leave you enough room to upgrade the CPU/MB later. If you can search around and find a good brand with more watts for around the same or similar price I would buy it along with the new card. Kingwin is a good brand, but not as well known as the Antec, or a Corsair etc. Everyone seems to have their favorite and trusted brands. Just stay away from off brands. Newegg is a good resource for customer based reviews, just take them with a grain of salt. This site has excellent resources to help you make an informed buying decision as well. Search through reviews, buying guides etc.