First I was thinking about just upgrading the processor to an E8400 for $170, but after more research and reading the Best Gaming CPU's for April 2011, I came across the i3-2100 and the i5-2500K .... I found out for about $270-300 I could have a new motherboard, a much better CPU, and DDR3 Dual Channel Ram ...
I'm asking for advice on either sticking with what I have and just upgrading to an E8400,
OR can someone tell me the best motherboard, cpu, and ram within my budget !
In my opinion, $170 is too much to drop on a dual-core anything. If you're thinking of replacing the motherboard on a budget like this, you may as well go AMD and get a (much cheaper) x4 945 or 955 for $130 or $140, respectively, and overclock.
I'm not an expert on motherboards , so I can't really recommend one, but just go for something cheap with decent reviews and enough features. More expensive ones will give you negligible performance increases compared to the Don't go overboard on a motherboard.
Quality of RAM also isn't much of a factor in performance. Don't bother with 1600 over 1333, for instance. You probably don't need more than 4gb.
Your graphics card is, I think, the best part you currently own. Overclock it!