What would be best graphics card you would recommend for my system?

ATI 5870 or GTX560ti

Shoot you already have what I would have recommended. Everything else is just gravy.

If you must upgrade I'd recommend the GTX 560Ti (I own an HD5870 and it's great, I just would now recommend the 560Ti).

Why don't you consider a second HD5770 for Crossfire which is supported? Google the benchmarks.

Bottleneck:
I should add that a second card MAY bottleneck your system with the CPU, however the ratio of CPU to Graphics changes with every game anyway.

I suspect you may even find the "sweet spot" with a 2xHD5770 where some games are limited by the CPU and some are limited by the graphics.

Crossfire:
Crossfire benchmarks are sometimes deceiving. Crossfire and SLI use the 2xVRAM to help Anti-Aliase more effectively than one card alone. 2x1GB is NOT 2GB it's 1GB twice but optimized for certain post-processing tasks.

AA to me makes the largest difference in a game. If I could use the absolute maximum AA in modern games I would (I use 4xAA mult-sampling usually).

You should always enable VSYNC, then monitor the game with FRAPS to ensure you're getting 60FPS. For example, if you get 55FPS you should turn down AA or Shadows, for example, to get above 60FPS so VSYNC now works (syncs frame creation with monitor display to prevent TEARING which looks very bad in some games).

RadeonPro:
This is a great tool for Radeon users. I use it to enable AA and VSync where not supported. For example MASS EFFECT #1 looks way, way better now that AA can be forced on. Of course it takes a performance hit but AA wasn't even an option before (strange). The only game I couldn't force VSYNC on for was "The Force Unleashed 1 and 2"; who the F developed this game? How do you make a fairly good game (#1) and forget about VSync in 2010?

so a gtx 560 ti would be ok with my psu and cpu and i would see a decent upgrade without too much of a bottleneck?

Here is the comparison http://www.anandtech.com/bench/Product/296?vs=330&i=188... You may have a small bottle neck and not get the full potential and I would recommend a better PSU.

do you think a better psu is necessary or just recommended?

I am wondering the same thing. I have the same setup as you but my PSU is a little better. I have a 550 BFG psu.