I'd have gotten a more powerful graphics card instead and overclocked the 4-core athlon a bit, it's already good enough for gaming still as it's a phenom II just with no L3, and yes in order to max out the shadows and drawing distance you will need about 2gb VRAM, so that 7770 won't do. Also icenhancer is much more heavy on the gpu than it is on the cpu so you'd benefit more from a better graphics card than a faster cpu.
If I were you as you said you had $400 to spend I'd get a 7950 and OC the athlon some, there won't be much of a bottleneck either. The rig'd last you at least a few more years playing the latest games (not necessarily at max settings, depends on what resolution you have) without having to upgrade much.
Still the 2500k will give you a nice improvement in overall performance and boost your framerates, BUT you won't be able to max GTAIV due to not enough VRAM on the 7770, even if you play at a lower resolution.