1. Are these VGAs okay to consider? -> HD6670/HD6770/others?
2. is spending any more wasted? i.e HD6850/HD6870?
3. What does a RAM-upgrade do? 1GB->2GB/4GB
4. Does the PSU need to be upgraded too?
5. He can get a HD5630 for very little money should he take it or is it or close to the current VGA?
The Radeon HD 5670 or HD 6670 would probably be the most I would upgrade to. The Athlon 64 3800+ is a single core CPU and will most likely bottleneck a faster card.
Additionally, the motherboard is a bit old and assuming it has a PCI-e 1.0 slot, it will have no issues with a PCI-e 2.0 card. However, it some old motherboards with a PCI-e 1.0 slot can be incompatible with PCI-e 2.1 cards.
There is a possibility that you may have a motherboard with the now obsolete AGP slot. Therefore, you need to find out exactly which version of the GeForce 7600 GT you have because PCI-e and AGP are not compatible with each other.
You should upgrade to at least 2GB of RAM. Upgrading to 4GB would be better since some games can use as much as 1.6GB of RAM after a while because of memory leaks. Which leaves very little for the operating system. However, if you have a 32-bit operation system like Win XP or 32-bit versions of Win Vista or Win 7, then the operating system will only recognize around 3.25GB - 3.5GB of RAM.